How to Legally Avoid Taxes in 2023: These 11 Tips Will Save You Millions and ARE

We understand that you hate shelling out a hefty amount to the taxman every year. However, just like a necessary evil, you must pay taxes, right? Amidst a year of inflation, recession, and high volatility in the stock market, you’d be strategizing your tax cut or finding ways to avoid taxes.

A calculated mix of investments, tax credits, and deductions can help you save millions! Well, this might give you the impression that tax saving is something illegal. We assure you that’s not the case.

Difference between tax avoidance and tax evasion

The US government has devised several strategies to help its citizens save taxes. You might already be familiar with some of the popular tax credits and deductions. Besides, we will recommend some investments in this article that should help you save tax.

Since most taxpayers are unaware of these legal tax-saving ways, they tend to miss them out. When you avoid paying taxes by adhering to the legalities, you simply save them!

Tax evasion is something different and a practice you shouldn’t probably indulge in. It involves deliberately concealing or misreporting your income to avoid taxes you should have legally paid. In other words, tax evasion means you simply refuse to pay taxes that the IRS deserves from you.

Here are some instances of tax evasion that you should refrain from indulging in.

• Hiding one or more of your income sources.
• Underreporting your income.
• Taking your taxable assets offshore.
• Using your business assets for personal purposes.
• Creating dummy corporations or shell companies.
• Claiming undue deductibles.

11 Tips to legally avoid taxes: Bank on your tax credits, deductions, and investments

Taxpayers often miss out on rightful deductions owing to a lack of information. Here are some legal ways you can deploy to save taxes.

1. Contribute the maximum to retirement accounts

2023 brings a positive development to taxpayers ready to increase their accumulations in retirement accounts. You can now contribute more to your individual retirement account as well as 401(k).

The authorities have increased the employee deferral limit from $20,500 to $22,500. Investors aged over 50 could deposit a maximum amount of $6,500 till last year. This amount has been increased to $7,500, enabling you to save even more taxes. These benefits are also applicable to most of the 457 plans, 403(b) plans, and Thrift Savings Plans.

Also, the authorities have boosted the contribution limits for IRAs. In 2023, taxpayers can save up to $6,500. Until last year, it was capped at $6,000.

2. Retirement accounts for freelancers

Being a freelancer or an independent professional, it pays to capitalize on your retirement investment opportunities to lower your tax burden. Here are two legal ways to underpay your taxes without bearing any consequences.

Individual Retirement Account (IRA): When freelancers contribute to a traditional IRA, they are exempted from the contributed money until they draw them during retirement. However, this withdrawal age is 72, leaving you plenty of time to consolidate your finances.

Roth IRA: If you contribute to a Roth IRA, you will be taxed on the amount you channel to this account now. However, when you retire, withdrawing the amount would be tax-free. For a Roth IRA account, the withdrawal age is 59.5.

Suppose you are in the 24% tax bracket. Contributing an annual amount of $9,000 to your IRA will legally save you income tax worth $2,160.

3. Take advantage of your HSA Account

Allocating funds for medical purposes under an HSA account can help you save tax.

Are you privileged for an HDHP (high deductible health plan) through your recruiter? This might allow you to access an HSA (Health Savings Account) so that you don’t pay medical expenses from your pockets.

Well, taxpayers need to contribute to this account through their pre-taxed income. This would eventually reduce their taxable income. The medical expenses that you qualify for wouldn’t invite any tax.

You can take tax advantage legally from your HSA Account in three ways:

• Pre-tax payroll HSA deductions
• No tax for medical expenses that you qualify for
• Tax-free growth

Before you start contributing to HSA to legally save taxes, consider these aspects:

• To qualify for an HSA, taxpayers need to enroll for an HDHP at the outset.
• HSAs come with some upper caps on contributions. For instance, freelancers in 2023 can contribute up to $3,850 to self-only HDHP coverages. Again, if you have family coverage, the limit is $7,750.
• While opening the HSA account, it’s imperative to choose a beneficiary.

4. Capitalize on your FSA (flexible spending account)

Don’t have access to your HSA account? Well, this shouldn’t dampen your spirit since you can still allocate funds tax-free for medical purposes. Some employers don’t offer HSA accounts. Instead, they provide flexible spending accounts (FSAs), which prove to be much more versatile. While HSAs allow taxpayers to put aside funds solely for medical…