Very few people like paying taxes. Most of us look for ways to reduce our tax liability. For example, we save making major purchases for the annual “tax-free” shopping weekends that occur in many states late in the summer prior to the start of the school year. Not only do we modify our spending habits to reduce tax liability, but both state and federal tax codes have been written in such a way as to try and shape our behavior, as well.
For example, the Internal Revenue Code is written to incentivize certain behaviors. This is accomplished through a combination of credits and deductions. One such example is the child tax credit found in section 24(a) of the Internal Revenue Code. Consider two married couples earning $80,000 per year at the exact same jobs in the exact same neighborhood. One couple has one child and the other does not. The couple with a child may take advantage of the child tax credit and will pay fewer income taxes than the couple without a child. In the same example, imagine the couple without a child rents their home and the couple with a child owns their home and has a mortgage. The couple with the mortgage on their home will further reduce their tax liability because section 163(h) of the tax code incentivizes homeownership.
While most people are familiar with some of the common tax provisions – like the child tax credit or the home mortgage interest deduction – the tax code is full of ways to reduce individual and corporate tax liability annually from renewable energy investment, savings for retirement, restoration of historical buildings, education, and charitable giving, to name a few. If you are interested in looking at ways to reduce your personal or corporate tax liability, you should consult with a tax attorney. As the year comes to a close, now is a good time to schedule a consultation to discuss how the tax code can work to help you and your business and possibly explore ways to restructure your business to take advantage of additional benefits, credits, and deductions. Each person’s financial and tax situation is unique and this article should not be considered tax advice.
If you are interested in more information about how our Tax Attorneys can help you, please let us know.
Post Authored by: J. Drew Zimmer
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