If he finds the answers to these questions, he should share. Along with letting me know where the unicorns live and where my flying car is.
I waited 3 months for a reply. In Summary:
How can you reduce your reported salary income, and still save it in a bank?
(besides 401k)
How can you reduce your tax liability thru deductions or credits, without spending more than the deduction?
Deductions are great if you need to buy the item anyway, like food or shelter. The standard deduction. But what if there’s nothing more you need to buy? How can you decrease your tax liability?
There’s no way to reduce your tax liabity, if you count spending money to get those deductions as a liability. The money spent on expenses is always greater than the corresponding deduction. Being that the point of deductions is to partially compensate you for specific expenses you have incurred, it certainly seems like you’re asking for the impossible.
Vote for representatives who will lower the tax rate.
Get married to someone who doesn’t make very much money.
Move to a state where the tax rate is lower.
Have a kid become a flight attendant so you can get free airfare to South America and not have to declare it as income.
Write a book about paragliding so you can deduct your trips as business expenses.
Thanks Randy! Great practical advice that applies to me! I don’t think you’ve missed any other possibility. You answer is complete. Most of the people on here joke about it, or miss my point entirely. I appreciate your advice.
Well, you can’t. No free money.
Of course, people who are blind get an extra standard exemption, as do people over 65. Not much you can do to hasten the latter but I suppose you could go out and stare into the sun or something (personally, I’d rather pay the taxes).
So all in all, the only way to reduce your tax bill is to reduce your taxable income. Either by going for deductible costs (e.g. mortgage), or be reducing it pretax via 401(k) or IRAs. That also, incidentally, may make you eligible for other tax-deferral things - say you’re on the cusp of not being able to contribute to a Roth IRA because your income is 5,000 too high. Put 5,000 in the 401(k)… and all of a sudden your income is low enough to contribute to the Roth.
But in any case, this requires you to “spend” money (even though you’re spending it on a savings account that you can access later).
Not quite what you asked but: you have medical expenses, right? Even if it’s just 20 bucks copay for the doctor a couple times a year and a new pair of glasses now and then. You’re going to spend that money anyway (so this doesn’t require you to spend more money) - but if your company has a pretax flex spending account, you can put that money aside pretax. That saves you on income AND social security taxes.
Oh, and adding onto the above: if you lower your income (by using a 401(k) or IRA), that may also make it easier to take deductions. Say you spend 5,000 on medical expenses, and your income is 100,000 a year. That’s not enough to deduct any of the medical expenses (assuming a 5% minimum - I forget what the exact figure is). If you lower your income to 85,000 because of 401(k) contributions, 5% of that is 4,250 - so you may be able to deduct 750 of your medical expenses.
I know you said “lower without spending money” and of course here I’m talking about medical expenses. So, not quite what you’re talking about. But if you’re making certain expenses anyway, this will save you a little.
Similarly, certain credits and deductions phase out as your income increases. Lowering your taxable income may increase your credit or deduction. Say everyone who owns a purple geranium bush gets a 1000 dollar beautification credit each year, but that disappears if your income exceeds 100K. Lower the income (through 401(k) and you get that geranium credit after all :).