No one can avoid paying taxes entirely — at least not legally. However, there are plenty of tax avoidance strategies that allow you to reduce how much you owe, legitimately. You can even return to some of your prior tax returns to claim refunds, if you find out that you paid more than you needed to in the past.
1. Save for Retirement
You should be saving for retirement anyway, but you can benefit from these savings sooner by using them for a tax break. One option is a Savers Tax Credit, available when you contribute to a tax-deferred or Roth retirement savings account. This may allow you to reduce your tax bill by up to $2,000.
Those who are unable to qualify for the Savers Tax Credit may still be able to deduct contributions from their tax-deferred IRA. This is a possibility provided you have no access to a retirement plan from an employer.
2. Mileage Reimbursement
Any time you use your vehicle for work assignments, your employer needs to reimburse you for 53.5 cents per mile. If your employer does not reimburse you the full amount, you can deduct automobile mileage expenses from your tax bill.
You can do the same for any driving you do for charity or volunteer work, along with any other travel expenses, like parking and toll fees. If you use a different mode of transport for your charity work than your own vehicle, you can still receive a deduction for these travel fares.
3. Education Expenses
There are several educational credits available to reduce tax bills. If you, your spouse, or any of your dependents are seeking a four-year degree, training necessary for a current job, or education to learn a new trade, you may be able to deduct some expenses for tuition, materials, and transportation.
Having children can reduce your tax bill in a few ways. For instance, the Child Tax Credit reduces your tax bill by up to $1,000 for every dependent. Although it is not refundable, if it is more than your tax bill, you may also qualify for the refundable Additional Child Tax Credit. Another option is the Child and Dependent Care Credit, for daycare expenses for dependents under the age of 13.
Another way to benefit from your children is to give them money from your estate. This is effective when your estate is larger than the exclusion amount. You can reduce the value of your estate without paying federal gift tax by giving $14,000 a year for each child (or grandchild or another person).
5. Home Office
You may be able to deduct for a home office if you meet certain criteria. First, it should be your primary place of work. Second, you must use the location to meet clients. Third, your home office must be a room specifically designated for business use. Finally, you must have created the home office due to demand from your employer, not for your own convenience.
These are just a few tax avoidance strategies. There may be more available to your specific situation that only an expert is likely to uncover.