Ten IRS loopholes that can help you reduce next year's bill

While tax season might be over for this year, now is the perfect time to consider how to limit the damage of your next bill.   

The Internal Revenue Service (IRS) offers Americans a variety of tax credits and deductions that can reduce how much you owe.

Federal tax deductions can slim down your income before you calculate what you owe, while credits can cut the levies themselves or increase your tax refund. 

Tax avoidance, where you attempt to minimize your taxes, is legal — as long as the deductions you use are allowed. It's always best to consult with a professional who can help you reduce or eliminate your tax bill without getting in trouble for tax fraud. 

Dailymail.com has compiled a list of the top 10 tips and tricks to legally reduce your next bill. 

Federal tax deductions can slim down your income before you calculate what you owe, while credits can cut the levies themselves or increase your tax refund

1. Claim all the deductions and credits you can

The IRS offers a wide range of tax credits that covers everything from buying energy-efficient products for your home to health insurance premium payments.

According to GOBankingRates, the key to benefiting from these credits is examining all of the purchases you've made throughout the year to see if you are owed money. 

For individuals, there are 17 tax credits to take advantage of. These are sorted into five categories - family and dependent credits, clean vehicle and energy credits, income and savings credits, homeowner credits and healthcare credits. 

To see which credits or deductions you might be eligible for, visit the IRS page. 

You could be eligible for a clean vehicle tax credit if you buy a qualifying electric car

2. Make energy efficient changes

From now until 2032, homeowners can claim up to $3,200 annually in credits for improvements such as installing heat pumps, energy efficient windows and doors or insulation. 

A separate credit is offered for the installation of solar panels, wind energy and geothermal systems as well as battery storage.

You could also be eligible for a clean vehicle tax credit of up to $7,500 if you buy a new, qualified plug-in electric car. 

3. Get a credit for higher education 

Enrolling in college could also cut your tax bill. The government currently offers credits and deductions — you usually have to take one or the other — to go back to school online or in your community.

Meanwhile, students can take advantage of one of two education tax credits.

The first is the American Opportunity Tax Credit, which offers up to $2,500 off the cost of tuition, fees and course materials paid during the taxable year per eligible student. 

Another credit to consider is the Lifetime Learning Credit, which offers up to $2,000 off the cost of tuition, fees and course materials. You can claim only one credit per year. 

It is worth bearing in mind that financial aid in the form of grants and work-study offer tax-free cash that doesn't count as taxable income. Scholarships are also non-taxable as long as the money is used for school-related purposes like tuition, fees, books, supplies and equipment.

The Internal Revenue Service (IRS) offers Americans a variety of tax credits and deductions that can reduce how much you owe

4. Itemize your taxes 

You can also potentially cut your bill by figuring out your itemized deductions, rather than just taking the standard deduction. 

Itemized deductions are specific expenses the taypayer incurred that may reduce their taxable income. 

The 2022 standard deduction is $12,950 for single filers, $25,900 for joint filers or $19,400 for heads of household. Those numbers rise to $13,850, $27,700 and $20,800, respectively, for the tax year 2023. 

Most people take the standard deduction available to them when filing taxes to avoid providing proof of all of the purchases they've made throughout the year - and there is no guarantee that itemized deductions will add up to more. 

But if you've made substantial payments for mortgage interest, property taxes, medical expenses, local and state taxes or have made major charitable contributions, it could be worth taking this step.

These tax deductions are subtracted from your adjusted gross income, which reduces your taxable income. 

If you cut your income, then you might also be able to avoid other taxes, according to GoBankingRates. 

The IRS has an interactive tax assistant tool which can walk you through the process to determine the general standard deduction you may be eligible for — and it only takes five minutes. 

Use the calculated figure to decide which deduction is greater — the standard deduction or an itemized list of all your purchases and expenses. 

It is possible to eliminate your bill entirely if your tax deductions are equal to or greater than your income. 

Remember, however, that the IRS calculator refers to federal taxes and you may still be liable to pay local and state taxes. 

You can claim a deduction on your taxes for the amount of money you give to charity

5. Make charitable donations 

If you donate to a registered charity, you can claim a deduction on your taxes for the amount you give away. 

Cash donations are deductible, as well as goods, clothing and contributions made with payroll deductions. 

Bear in mind that only those who itemize on their returns can deduct charitable donations. 

6. Open a health savings account 

With a health savings account (HSA) you can set aide pre-tax cash and carry it forward infinitely to cover medical bills. 

If you have an eligible high-deductible medical plan, it is another potential way to lower your taxable income.  

'That's money that never gets taxed if you spend it on medical (expenses),' accountant Tatiana Tsoir told US News.  

7. Sign up for a flexible savings account 

You do not need to be on a high-deductible medical plan to sign up for a flexible savings account (FSA) but you will only be given a year to use up your account balance or you risk forfeiting it. 

For 2023, FSA contributions max out at $3,050 for healthcare spending. 

Contributing to a retirement account is an easy way to cut your tax bill legally 

8. Contribute to a 401(k)

Retirement account contributions are one of the easiest ways to save on taxes. 

Contributions to traditional workplace 401(k) and IRA accounts can be deducted from your taxable income and, as a result, reduce the amount of federal tax you owe. These funds also grow tax-free until retirement.

While contributions to workplace 401(k) accounts must be made by the end of the calendar year, tax-deductible contributions can be made to traditional IRAs up until the tax-filing deadline, so there is plenty of time to get ahead.    

9. Sell stocks 

If you have underperforming stocks in your portfolio, selling them at a loss could actually help cut your bill as capital losses can be used to cancel out taxable capital gains. 

Or donate stocks to skip paying capital gains tax on the appreciated value, while also supporting the charity of your choice.

Combining a vacation with a work trip can allow you to deduct some of the expenses - but experts warn to be sensible and seek advice 

10. Write off business travel expenses even while on vacation

Combine a vacation with a work trip, and you could reduce the cost of your trip away by deducting the percent of the expenses spent for business purposes. 

This could include airfare and part of your hotel bill, but make sure it is proportionate to the time spent on business activities. 

'People have to use common sense,' Donald N. Hoffman from Eisner Advisory Group told US News.    

Business owners who get greedy and begin writing off expenses that aren't legitimate business costs could find themselves in deep trouble with the IRS. Be sure to talk to a tax professional about how to make this calculation accurately.  

Tax preparer Jody Padar told CNN Money how a firefighter from Michigan was able to write off scuba diving training trips to the Florida Keys as a business expense on his taxes. 

The deduction was allowed, since the training enabled him to keep the scuba diving certification required for his job with the fire department's dive team, she said.

Tax preparer Jerry Lewin also told the outlet about a client of his who took a multiyear trip around the world with stops in Italy, France and Greece — and was able to claim the money back as he wrote a book about his travels. 

Even though it was published by a very small publisher and only sold 20 copies, it counted as a business expense.