Many people in the United States don't know how to legally reduce taxes payable to the federal government annually. From this perspective, many U.S citizens often devise illegal ways to evade taxes (Rogers, 2019). But in reality, there are various ways in which people in Alabama State can use to legally reduce their annual tax payable.
The first legal way to reduce the tax payable is through the health saving account (HSA) initiative. U.S employees which have HSA can ultimately use this legality to reduce their tax payable to the federal government annually ( Rogers, 2019). HSA enables employees to contribute $3,550 while families can contribute $7,100.
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According to Cammenga (2021), HSA contributions can grow without U.S individuals being asked to pay annual taxes by Alabama and the federal government. When HSA is specifically used to pay and settle qualified medical expenses, the contributions and withdrawals are not taxed according to federal law.
The federal law outlines that qualified medical expenses include; ambulance, acupuncture, artificial limbs, chiropractor, blood sugar and diabetes tests, artificial teeth, birth control treatments, lactation supplies and breast bumps, and other certified expenses by the American Nursing Association and other U.S medical associations that are legal.
The second legal way of reducing tax payable is through investing in short-term or long-term capital gains such as real estate, bonds, mutual bonds, and company shares ( Cammenga, 2021). According to federal law, U.S investors who hold capital assets for more than a year are given a preferential tax rate of 20% of the capital asset.
If the capital asset is held for less than a year, preferential tax is calculated based on the ordinary income rate ( Rogers, 2019). This will ultimately reduce tax payable to the federal government by capital gains investors. Moreover, a married couple who jointly hold capital gains that have income less than$ 80,000, would pay 0% tax to the federal government.
References
Cammenga, J. (2021, February 19). Alabama Passes Tax Reform Aimed at Throwback, GILTI, and More . Tax Foundation. https://taxfoundation.org/alabama-tax-reform-2021/
Rogers, D. L. (2019). Federal income tax policy: issues of distribution and equity. In Handbook on Taxation (pp. 579-608). Routledge.
