Tax free income strategies can help you earn money tax free. Most people think that tax free income strategies are only for the wealthy. But there are many smaller strategies that the average person can take advantage of and use. Here are a few of the tax free income strategies that you may be able to take advantage of.
Contribute to a Roth IRA Account
One of the most recommended tax free income strategies is to contribute to a Roth IRA account. The contributions you make to the account are tax deductible, helping to decrease your current year's taxes. However, in addition to this, when you are of age, the payments that you receive from the account do not need to be claimed as income for tax purposes. This means that this type of account helps you both now and in the future. However, be aware that you can be penalized heavily for withdrawing money early, so only set aside what you can afford to in this type of account.
Set Money Aside in a Health Savings Account
Another tax free income strategy that you may be able to take advantage of is setting money aside in a health savings account, or HSA. HSA money does not count towards your income. This means that if you earn $50,000 per year, and set aside $5,000, your taxable income is only defined as $45,000. However, the downside to HSAs is that you must use all of the money in the account by the end of the year or you lose it. Additionally, you can only spend the money on certain healthy, medical and dental-related items.
Buy Municipal Bonds
The last tax free income strategy that the average person can take advantage of is buying municipal bonds. Municipal bonds are typically sold by cities, counties and states. When the bond matures, you receive your money back, plus interest for essentially loaning the city or state your money. But, the interest you earn from these bonds is typically tax free, helping you to earn extra money without increasing your tax liability.
If you are looking to make your dollar go further, tax free income strategies can help. But, before you make any changes to your current tax strategy, talk to an accountant, a tax preparer or a financial adviser, such as at Alternative Strategies Insurance Solutions. They can help you determine if the strategy you are considering is right for you or if another strategy may be better based on your incoming income, passive income and assets.