Tax season brings so much financial burden to taxpayers. When the tax season ends they start finding out ways through which they could lower their tax burden for the next year. Here are two legal ways through which you can reduce tax burden.
Invest in Municipal Bonds
Municipal Bonds are the debt securities that are issued by the government. They are used to finance government expenditures like highways, bridges, schools, etc. Municipal bonds aren’t only exempt from federal taxes; they are also exempt from most state and local taxes, especially if you happen to live in the state in which the bond is issued. Municipal bonds have a place in many investors’ portfolios.
Another Tax Saving Option is ROTH IRA
Another tax saving option is the ROTH IRA, which is applicable on basically the retirement savings. You contribute in your retirement savings, at the end your retirement fund will be tax-free when you draw then after retirement.
However there is a major problem with the ROTHs that it is of no help for people with high income. There is a bracket of income which defines which income group can enjoy the benefits of ROTH. These income limits are based on Modified Adjusted Gross Income (MAGI) which can be calculated from the IRS website.
ROTHs also limit the amount you can contribute each year. If you are under 50 years old you can only contribute $5,500 per year. If you’re 50 and older, the limit is raised to $6,500 each year. For many, these limited contribution amounts are just not larger enough.
There is another plus of ROTH that you can withdraw money without penalty, equal to or less than your contributed amount, at any stage if you require it for your son’s college or any such thing.