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Just about everyone wants to make more money. However, you might not like paying taxes on what you earn. Taxes pay for many crucial societal fixtures, but you may still feel regret when you see that money taken out of your paycheck.
However, did you know that there is such a thing as non-taxable income? Just as the term indicates, there are ways you can receive money that is not subject to taxation under the current United States tax code.
In this article, we’ll talk about how to increase your non-taxable income so you can retain more of your money.
If you want to hang onto more of your money, you don’t necessarily have to resort to drastic actions, like looking into the most reasonable debt consolidation loan rates. Instead, it’s helpful to learn what kinds of income are non-taxable since that is cash you can keep without any government intervention.
Unfortunately, virtually any money you make through a conventional job is taxable, at least at the federal level. It is mostly income that comes to you through unconventional means that has non-taxable status.
For instance, you can harvest capital losses. If you have assets that have underperformed during the year, you can report that on your tax return. Reporting investment losses lowers the amount of your taxable income. You can offset up to $3,000 in losses if an asset in your portfolio hasn’t done as well as you would have liked.
You can also put money into a long-term Roth retirement account. The cash you put into these accounts grows according to an after-tax structure. In other words, taxes are taken out of that money when you first put it into the account, but after that, there is no tax on the interest that it accrues.
Because of this, the more money you put into a Roth IRA, the more tax-free income you will make in savings. It’s true that you can’t access that money without a penalty until you turn 59½, but when you get to that age, you can enjoy the monetary cushion the account provides.
Some people also don’t realize that a few states in the U.S. do not tax your income. You’ll still need to pay taxes to the federal government, but if you reside in one of these states, you can keep more money from every paycheck you receive.
The states that don’t tax income are Wyoming, Washington, Alaska, Florida, Tennessee, Texas, Nevada, and South Dakota. If living in any of these places appeals to you, no state income taxes are a big incentive that’s hard to ignore.
If you’re creative and determined, there are ways to increase your non-taxable income. Heading to a state that doesn’t tax your income is probably the most direct way of doing that. You’ll still have to pay federal income taxes, but no state income taxes means more money in your pocket with every paycheck you cash.
Setting up and funding a Roth IRA means generating more non-taxable income. The money you deposit into the Roth IRA is taxed when you put it in the account, but the interest it accumulates will not be taxed again. When you turn 59½ and take that cash out, you will reap the full benefits of that arrangement.
Harvesting tax losses means you can report more of your income as non-taxable. If you lost up to $3,000 through any investment, you can tell the IRS about it during tax season. They will consider a corresponding $3,000 that you made to be non-taxable.
All of these methods will allow you to keep and enjoy more of your money.
