Your Tax
TRIM YOUR PERSONAL TAXES
No one likes thinking about income taxes. Everyone despises paying them. The reality is, if you will think about taxes a little during the year, you may feel a little less anger at the end of the year (not to mention a little more weight left in your pocket).
1) MAXIMIZE 401(k) AND 403(b) CONTRIBUTIONS
If your employer offers a 401(k) plan (this is a 403(b) for non-profit organizations) you should change your contribution to the maximum allowed - or that your budget can stand. Not only will the amount contributed be reduced from your taxable earnings, but the contributions will grow tax free until retirement. This deal is made even sweeter if your company will match at least a portion of your contribution.
2) REEVALUATE IRA'S
Plan to make the maximum contributions to an Individual Retirement Account. Even if your income will negate some of the deductibility of the contributions, these accounts still make tax sense because your earnings grow tax free until retirement.
3) TRANSFER LUMP SUMS
If you are expecting a lump sum distribution from a pension or profit sharing plan, and do not have an immediate need for the money, consider having the proceeds transferred into an IRA (see 2 above). Be sure that the transfer is made from one trustee directly to another trustee. If the money is transferred to you first, prior to being deposited into an IRA, the trustee is required to withhold 20% for Uncle Sam.
4) OPEN A KEOGH
Keogh plans are available to self-employed individuals with any amount of self-employment income. Generally, you can contribute up to 25% of your net self-employment income or $30,000 whichever is less.
5) ADJUST WITHHOLDING AMOUNTS
You should, as closely as possible, match the amounts withheld from your paycheck to your tax liability. If you received a refund last year, you may be giving the government interest free use of your money and should reduce the amount of your withholding. Also, if you have moved to a higher income amount, you may need to adjust your withholding up to avoid possible underpayment penalty.
6) INVEST TAX FREE
Generally, interest income of municipal bonds are not subject to federal income tax (and is also exempt in many states). Also, after figuring a tax free yield on the bonds, many out perform corporate bonds. The higher your tax bracket, the more attractive these investments will be.
7) SAVE FOR COLLEGE TAX FREE
Consider series EE savings bonds for college tuition of your dependents. Income from the savings bonds may be totally tax exempt if used for tuition of your children. Income limitations may apply and the yield on these bonds may make savings bonds less attractive.
8) INVEST FOR CAPITAL GAINS
Currently, capital gains are taxed at what could be a favorable maximum tax rate of 28% - and congress may reduce this even more. If you have a tax rate above this maximum, several types of growth investments could be used in your favor.
9) SHIFT INCOME
To reduce your families overall tax bite, consider shifting income producing investments to a child. The income will be taxed at their lower tax rate. However, if the child is under age 14, any amount of unearned income greater than $1300 is taxed at the parents tax rate.
10) GIVE THE GIFT OF CASH
You can reduce the amount of tax your estate will pay and therefore increase the amount your heirs get to keep by giving inheritance now. You and your spouse can give up to $10,000 per year to as many recipients as you wish tax free to both parties. This can significantly reduce the amount of your estate if started early.
11) HIRE YOUR CHILDREN
If you own a business, hire your children as employees. The salaries you pay are deductible as wages paid and depending on the business form, the wages may be exempt from state and federal employment taxes.
12) TAX SAVINGS FOR GOOD CITIZENS
If you itemize your deductions, you may fully deduct the amount of charitable contributions. There are documentation requirements to follow. In addition, a greater tax break can be obtained from donating appreciated property. You are allowed to deduct as a contribution the fair market value of the item donated.
13) TALLY MEDICAL BILLS
Medical expenses are only deductible if they are greater than 7.5% of your Adjusted Gross Income (AGI). You should add the bills paid prior to the end of the year to determine if you are close to the limit. You may add some medical procedures you have been putting off or will have performed early the next year in order to deduct a portion of the costs.
14) BUNCH MISCELLANEOUS DEDUCTIONS
Miscellaneous deductions are only deductible if they are greater than 2% of your AGI. If you seem to hover around this amount each year, try to bunch your expenses into alternating years in order to deduct a portion of the costs. These expenses include business related expenses, tax expenses, investment expenses and others.
15) TAKE ADVANTAGE OF YOUR HOME
You can deduct property taxes as well as interest and points paid to acquire your primary residence. Points paid on the refinancing of your home are also deductible, but not in full in any on year. Instead, they must be deducted evenly over the term of the loan.
16) DEDUCT MOVING COSTS
You may still deduct the costs of moving you and your family greater than 50 miles as long as the move is to take a new job. However, expenses incurred in 'house-hunting' trips are no longer deductible.
17) CHOOSE THE BEST FILING STATUS
If your spouse has substantial deductions which are based on AGI, it may be to your advantage to file separate returns. Also, if you are single, you may qualify for a more advantageous head of household filing status. To determine which filing status is best, work your taxes out both ways.
No one likes thinking about income taxes. Everyone despises paying them. The reality is, if you will think about taxes a little during the year, you may feel a little less anger at the end of the year (not to mention a little more weight left in your pocket).
1) MAXIMIZE 401(k) AND 403(b) CONTRIBUTIONS
If your employer offers a 401(k) plan (this is a 403(b) for non-profit organizations) you should change your contribution to the maximum allowed - or that your budget can stand. Not only will the amount contributed be reduced from your taxable earnings, but the contributions will grow tax free until retirement. This deal is made even sweeter if your company will match at least a portion of your contribution.
2) REEVALUATE IRA'S
Plan to make the maximum contributions to an Individual Retirement Account. Even if your income will negate some of the deductibility of the contributions, these accounts still make tax sense because your earnings grow tax free until retirement.
3) TRANSFER LUMP SUMS
If you are expecting a lump sum distribution from a pension or profit sharing plan, and do not have an immediate need for the money, consider having the proceeds transferred into an IRA (see 2 above). Be sure that the transfer is made from one trustee directly to another trustee. If the money is transferred to you first, prior to being deposited into an IRA, the trustee is required to withhold 20% for Uncle Sam.
4) OPEN A KEOGH
Keogh plans are available to self-employed individuals with any amount of self-employment income. Generally, you can contribute up to 25% of your net self-employment income or $30,000 whichever is less.
5) ADJUST WITHHOLDING AMOUNTS
You should, as closely as possible, match the amounts withheld from your paycheck to your tax liability. If you received a refund last year, you may be giving the government interest free use of your money and should reduce the amount of your withholding. Also, if you have moved to a higher income amount, you may need to adjust your withholding up to avoid possible underpayment penalty.
6) INVEST TAX FREE
Generally, interest income of municipal bonds are not subject to federal income tax (and is also exempt in many states). Also, after figuring a tax free yield on the bonds, many out perform corporate bonds. The higher your tax bracket, the more attractive these investments will be.
7) SAVE FOR COLLEGE TAX FREE
Consider series EE savings bonds for college tuition of your dependents. Income from the savings bonds may be totally tax exempt if used for tuition of your children. Income limitations may apply and the yield on these bonds may make savings bonds less attractive.
8) INVEST FOR CAPITAL GAINS
Currently, capital gains are taxed at what could be a favorable maximum tax rate of 28% - and congress may reduce this even more. If you have a tax rate above this maximum, several types of growth investments could be used in your favor.
9) SHIFT INCOME
To reduce your families overall tax bite, consider shifting income producing investments to a child. The income will be taxed at their lower tax rate. However, if the child is under age 14, any amount of unearned income greater than $1300 is taxed at the parents tax rate.
10) GIVE THE GIFT OF CASH
You can reduce the amount of tax your estate will pay and therefore increase the amount your heirs get to keep by giving inheritance now. You and your spouse can give up to $10,000 per year to as many recipients as you wish tax free to both parties. This can significantly reduce the amount of your estate if started early.
11) HIRE YOUR CHILDREN
If you own a business, hire your children as employees. The salaries you pay are deductible as wages paid and depending on the business form, the wages may be exempt from state and federal employment taxes.
12) TAX SAVINGS FOR GOOD CITIZENS
If you itemize your deductions, you may fully deduct the amount of charitable contributions. There are documentation requirements to follow. In addition, a greater tax break can be obtained from donating appreciated property. You are allowed to deduct as a contribution the fair market value of the item donated.
13) TALLY MEDICAL BILLS
Medical expenses are only deductible if they are greater than 7.5% of your Adjusted Gross Income (AGI). You should add the bills paid prior to the end of the year to determine if you are close to the limit. You may add some medical procedures you have been putting off or will have performed early the next year in order to deduct a portion of the costs.
14) BUNCH MISCELLANEOUS DEDUCTIONS
Miscellaneous deductions are only deductible if they are greater than 2% of your AGI. If you seem to hover around this amount each year, try to bunch your expenses into alternating years in order to deduct a portion of the costs. These expenses include business related expenses, tax expenses, investment expenses and others.
15) TAKE ADVANTAGE OF YOUR HOME
You can deduct property taxes as well as interest and points paid to acquire your primary residence. Points paid on the refinancing of your home are also deductible, but not in full in any on year. Instead, they must be deducted evenly over the term of the loan.
16) DEDUCT MOVING COSTS
You may still deduct the costs of moving you and your family greater than 50 miles as long as the move is to take a new job. However, expenses incurred in 'house-hunting' trips are no longer deductible.
17) CHOOSE THE BEST FILING STATUS
If your spouse has substantial deductions which are based on AGI, it may be to your advantage to file separate returns. Also, if you are single, you may qualify for a more advantageous head of household filing status. To determine which filing status is best, work your taxes out both ways.
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