3 Ways to Lower Your Taxes -- Without Breaking the Law

Get ready to start paying the IRS less.

Paying taxes is an unavoidable part of life. But that doesn't mean you have to be happy about them. The reality is that you probably work hard for your money and would like to keep as much of it as possible away from the IRS.

Well, the good news is that there are steps you can take to shrink your tax bill without having to worry about getting in trouble. Here are three perfectly legal ways to pay the IRS less.

1. Max out your IRA

The money you put into your IRA is money you can save and invest for retirement, thereby ensuring you have enough cash to cover your living expenses later in life. But did you know that funding an IRA could also result in a near-term tax break?

If you contribute to a traditional IRA, the money you put in could be money the IRS can't tax you on (depending on the modified AGI limits set by the IRS). Now, you can't contribute an unlimited sum. There are annual limits you have to stick to, and as of now, the maximum amount you can put into an IRA is $6,000 if you're under the age of 50. If you're 50 or older, that limit increases to $7,000. But either way, funding an IRA is a great way to pay the IRS less in the near term while giving yourself more money to use in the long run.

2. Contribute to an FSA or HSA

Healthcare is an unavoidable expense most of us have to pay for. But there are ways to pay for healthcare in a tax-advantaged manner.

If you put money into a flexible spending account (FSA) or health savings account (HSA), the sum you contribute will go in tax-free, as it will with a traditional IRA. And so if you put $1,000 into either account, that's $1,000 the IRS won't tax you on.

Now, like IRAs, FSAs and HSAs have annual limits. And also, you generally can't contribute to both at the same time. 

HSA eligibility hinges on being enrolled in a high-deductible health insurance plan, whereas FSAs are easier to qualify for. But with an FSA, you have to deplete your fund balance annually or otherwise risk forfeiting money. HSA funds can be carried forward indefinitely, so there's less pressure there. 

This year, you can put up to $2,850 into an FSA. For an HSA, your annual limit will hinge on your age and whether you're saving for yourself only versus a family. 

If you're under age 55, you can contribute up to $3,650 to an HSA for self-only coverage, and up to $7,300 for family coverage. If you're 55 or older, these limits increase to $4,650 and $8,300, respectively.

3. Become a homeowner

Owning a home means taking on a host of expenses that renters don't face, like property taxes and maintenance. But the upside of owning a home is getting to deduct certain costs on your taxes.

The interest you pay on a mortgage, for example, is tax deductible if you itemize. And the money you pay in property taxes is deductible as well if you itemize, up to a limit of $10,000 per year (that limit applies to property taxes plus state and local income taxes). 

Don't pay more than you have to

Taxes can be a huge drag. But while you may not manage to whittle your tax obligation down to $0, you can take steps to pay the IRS less money than you've paid in the past. And that alone is something to be happy about.