While the state you live in may tax you for the property you own, and will always collect sales tax on almost everything you buy, state tax rates are very small compared to federal income tax rates. That is why it is so valuable to find ways to cut your federal income tax.

In order to reduce federal income tax, you have to reduce income – at least taxable income. The income tax goes up as your income goes up. The trick then is to keep your cash flow increasing while reducing the amount you have to report for federal income tax purposes.

One of the most important ways of doing this is to find all of the federal income tax deductions you are entitled to take. In the past, the mortgage interest deduction has been the biggest, but as real estate values are in decline and credit is tight, you need to look for other helpful deductions as well.

Most of the state taxes you pay are deductible. Don’t forget to personal property taxes on cars, boats, trailers, and other large items – usually those that are mobile. There are other itemized deductions like medical expenses and other business related costs you may be able to deduct.

Starting your own business is a great way to save on federal income tax. All of the ordinary and necessary items you purchase for the business are deductible.