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You might have always wanted to retire early, but that’s only possible if you put away a substantial amount of capital. After retirement, you live on your investment income, but you can only do that if your savings allow it. Maxing out your contribution to a retirement account not only allows you to think about early retirement, it also lets you reduce your current tax burden. Contributions to IRAs and 401(k)s are often pre-tax.
Your children can really help lower your tax burden. Not only do you get to claim them as dependents, you may also qualify for the child tax credit, which knocks $1,000 off your owed taxes per child. You can deduct all childcare expenses and start a college savings account that will grow tax-free. The top tax preparation software will help you properly deduct these costs.
A small business can be a great way to minimize your tax burden. You can take a loss for the first two years, and then take more control over your tax debt. A business might allow you to claim deductions for some of your home, write off business-related travel or cover some regular expenses that support your business like a cell phone or internet service.
During retirement, one of the biggest expenses you might face is healthcare. The average couple will spend $260,000 on healthcare expenses during retirement. Since you can contribute to an HSA tax-free up to an annual maximum, you can set aside a lot of the money you will need during your prime working years and save money on your end-of-year tax filing.
While a gift won’t affect your tax burden, you can help fund your children without worrying about double-paying. Gifts up to $14,000 annually are tax-free, so you can send your child off to college with a nest egg or help out during lean times. Married couples can even double that amount without worrying about giving the gift of more taxable income along with the money.