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How to Reduce Tax Exposure Taxes take up a huge chunk of the incomes that people make, and every taxpayer is always looking for ways to reduce the tax bill. The first step in reducing the tax bill is to earn tax-free income that is not subject to income tax. This lowers the tax liability that the person is exposed to and some of the ways of earning tax-free income include the following: investing in bonds or depositing money in a tuition plan for a child's education. The other option is to flex one's spending power by spending money elsewhere. It is a known fact that many employers offer a benefit that allows employees to reduce their tax bill by spending money that had been allocated for use such as medical expenses or dependent care. These advantages enable the employee to divert the funds to an alternate account that they can use to pay for medical bills, and this saves the employee from income and social security tax obligations, which can eat away about 20-35% of the income. It is noteworthy fact that paying for childcare bills with pre-tax dollars if the employer offers benefits like dependent care assistance plans can save an employee at least one-third of the cost since they will have avoided an income tax obligation on about $ 5,000.

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Over the last couple of years there have been new tax deductions that have come up such as the home office deductions that states that if someone uses part of the home for business, then they are eligible for new a home office deduction. Just as simple as it looks this simple deduction can help a homeowner save as much as $1500 since the calculation is done at $5 per square foot up to a maximum of 300 square feet of the area in the home used for business.

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Another amazing fact to note is that Job hunters can also enjoy tax deductions so long as they keep receipts of all the money they used while they were unemployed and seeking for a job. It is important to highlight that the tax deductions are only applicable if the person was seeking a new position in the same line of work and they can file for deductions on job-hunting costs such as the cost of lodging, food and transportation. These items need to be itemized and if they exceed 2% of the adjusted gross income, then they qualify to be deductible. It is incredible to highlight that going green not only saves the planet but also keeps more money in the pocket for a green energy user. It is important to highlight that there is a tax credit available for homeowners that have installed alternative energy equipment, and they may claim up to 30% of all the costs incurred in establishing the project, cost of the systems such as solar power systems, wind turbines, geothermal heat pumps and even the labor costs.