Since tax time is rapidly approaching, you are probably thinking about how to reduce taxable income. Although you may have been thinking about it all year, there may still be time to lower your taxes even more before the year’s end. One of the best ways is to take advantage of tax exemptions and credits.
Capital Gains Exemption on the Sale of Your House
When you sell your home, you may be entitled to a capital claims exemption on the sale. The Internal Revenue Service says that your house must have been your primary residence for at least two out of the last five years that you owned the home. If you are single, you can get an exemption of $250,000, and if married filing jointly, up to $500,000.Contributions to a Retirement Account
If you have a retirement account, contributing the maximum amount allowed is one of the easiest ways to reduce your taxes. The money put into some of these accounts—whether an IRA or 401(k)—is deducted from your taxable income, which reduces the taxes you owe.Note that some Roth accounts only use aftertax dollars and will not give you a tax deduction. The money in these retirement accounts grows with tax-exempt interest and remains tax free when withdrawn. You can contribute to your 401(k) until the end of the year. IRAs are different, which allows contributions up until April 15.
