Unpleasant surprises coming in the shape of unplanned tax bills can truly mess up your financial plan, and ruin your day all in one fell swoop.

However, there are multiple precautions that you can take to prevent such a tragedy from happening.

Keep on reading to learn how to reduce taxable income, and make sure that you get to enjoy your hard-earned money.

How to Reduce Taxable Income 101

There are multiple ways of cutting your tax bills down, and a great deal of them will require itemization instead of the standard deduction. However, the extra efforts will be more than worth it.

Learn Your W-4 by Heart

And, make sure to tweak it, if necessary.

In short, your W-4 is a form that you’ll be giving to your employer with instructions regarding how much tax to withhold from each paycheck.

If you had a huge tax bill this year, and really don’t want a repeated experience, then make sure to raise your withholdings so you’d owe less in the next tax cycle.

Another way of implementing this strategy would be in the case of receiving a large refund. You can reduce your withholding to give yourself some financial breathing room every paycheck.

Put Your Money in Your 401(K)

Following the simple formula of less taxable income = less tax, you can use a 401(K) to reduce your tax bills.

The IRS doesn’t look at any money you place into your 401(k) as long as it makes its way there directly from your paycheck.

As of 2019, you can funnel up to $19,000 per year into an account, and if you’re 50 or older, you can add on an extra $6,000.

It’s important to note that these retirement accounts are usually sponsored by employers. But, if you’re self-employed, you can open your own 401(k) with no issues as well.

The perk of having an employer-sponsored 401(k) is the free money you get through match-up programs.

Contribute to an IRA

You have two options here, there are two main types of individual retirement accounts. Those are Roth IRAs and traditional IRAs.

What’s great about a traditional IRA is the ability to deduct contributions right into your account. On the other hand, you’ll have to keep an eye on how much deductions are allowed in your case.

Things will depend on whether you or your spouse are covered by a retirement plan as well as your joined income.

For example, for the 2019 tax year, you might not be able to deduct your contributions if you’re covered by a retirement plan at work.

In addition, if you’re married and filing jointly, you may not be able to take advantage of contribution deductions of your modified adjusted gross income is $123,000 or more.

Nevertheless, if you’re in a bind, taking to an income tax relief advocate can make a huge difference in the final amount you’ll have to pay.

Reducing Your Tax Bill is the Tip of the Iceberg

Learning how to reduce taxable income can not only allow you to make use of additional money, but it can also help decrease the amount of stress linked to tax season.

And there are so many more business tips for you to check out! Make sure to take a look at our business tips section for all the tips and tricks you need.