Tax Reduction

Written by Lori Covington
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Interested in tax reduction? Start reducing your taxes by looking at the forms you use. Do you use one of the EZ forms, or the individual 1040 without itemizing? If so, you may be losing money from costs you should be deducting from your taxes. Sometimes, the easy way isn't necessarily the smart way, and taxes are arranged to take advantage of taxpayers' natural reluctance to get in over their heads.

Taking the standard deduction seems "safe," so that's what most people do. In 2001, nearly 65 percent of individual returns used the standard deduction, leaving only around 35 percent of taxpayers using itemization for tax reduction. Many people who switch from using the standard deduction to itemization do so with the assistance of a tax professional, finding that, even after paying the accounting fees, they come out ahead.

Investing should also be done with an eye to tax reduction. Individual retirement accounts, or IRAs, are one way to save money without paying taxes on it. Depositing the maximum allowable amount in an IRA each year helps reduce your taxes as you save for your future.

Other Methods of Tax Reduction

Investing in Real Estate Investment Trusts (REITs) is another way to use "passive investing" as a way to decrease your tax burden and save for the future. In fact, buying real estate rentals can lower your taxes sue to depreciation costs, which can be deducted from your earnings. Investing in a business is another way to decrease your taxes, but can be riskier than real estate. Whatever course you choose, keep meticulous records and thoroughly research investments before buying in, to prevent falling for potential scams.


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