Everyone tries to achieve tax cuts, by adopting various methods of personal finance. In this tax-saving stunt, it is worthwhile if you are aware of some legally non-taxable forms of income. IRS cannot munch one crumb of tax from such forms of income. The reason is that the law itself prevents IRS from levying income tax on them by stipulation. If you earn such an income, you don’t have to worry about tax payment for it. Here are some of these forms of income you may wish to make the most of.
1. Interest from State Bonds:
Interest you earn from the bonds supplied by the state are free of all kinds of tax, though returns may not be substantial. For instance, if you are in the 35 % bracket, at a tax-free rate of 5 % your taxable rate becomes 7.6 %. However, if you are in the 15 % bracket, this becomes a lower 5.9 %.
Some of these bonds are not only tax-saving at the federal level; they may be tax-free at the state and local level as well. This is, hence, definitely worth a try.
2. Tax-free Compensation
You can receive non-taxable compensation from your company in some ways. This can be negotiated with your firm, when you are on the verge of a pay raise. One form is health coverage: health and hospitalization insurance coverage prices are tax-free. So, you can negotiate with your company and get them to compensate you in medical insurance premium than in any other taxable form of rise in salary.
Life insurance coverage: this is another option of freeing up tax. Group life insurance coverage of $50,000 or less, paid by the company, is not taxable to the employees. And the employee can choose the beneficiary.
Educational expenses in the company are free of tax, if the company can pay for your training. So, in case you are planning to get higher education or special training, it is a great idea to get your company to pay toward it rather than from your wallet (even if you are doing training outside your functional area).
Transportation is tax-free: if you choose to use public transport to the office, then you can get your company to pay for the transport; you are getting this benefit free from tax. This is up to 100 dollars per month. Mostly the payments are made directly in the form of gift cards, discount coupons, etc.
3. Selling Home for Avoiding Tax
You read it right! According to the real estate law of 1997, if you have been resident in your home for two years in the last five, you can be eligible for tax savings on profits up to $250,000 (or $500,000 in case of joint sale) on selling your home.
If you are selling the home after one year (not fulfilling the two-year rule), you can get an exclusion for up to $125,000. But these exclusions are given if you are selling the house for a valid reason such as job transfer, unemployment, health reasons, or any other valid unforeseeable situations.
4. Tax Saving from Car Pool
This is a tip. If you decide to share your vehicle with other employees when you go to the office, you can have a definite advantage. If you carpool to work, and you are reimbursed for the effort you take for brining employees to and from work, you can most probably cover the cost of gas, repairs, or accessories of your vehicle. This is accounted to your excludable income. With this, you can save substantial money each month.
Saving tax can be very rewarding. But most of the people still are unaware of these schemes of income from which you can get substantial cuts in tax. If you are one such, then these options.