Top 7 Ways to Reduce Income Taxes
31396
Finance > Taxes
May 17, 2007
kamckinley
Top 7 Ways to Reduce Income Taxes
Are you paying too much in income taxes? Are you getting all the credits and deductions you are entitled to? Here are 7 tips to help you minimize taxes and keep more in your pocket: 1. Participate in company retirement plans. Every dollar you contribute will reduce your taxable income and thus your income taxes. Similarly, enroll in your company's flexible spending account. You can set aside money for medical expenses and day care expenses. This money is "use it or lose it" so make sure you estimate well! 2. Make sure you pay in enough taxes to avoid penalties. Uncle Sam charges interest and penalties if you don't pay in at least 90% of your current year taxes or 100% of last year's tax liability. 3. Buy a house. The mortgage interest and real estate taxes are deductible, and may allow you to itemize other deductions such as property taxes and charitable donations. 4. Keep your house for at least two years. One of the best tax breaks available today is the home sale exclusion, which allows you to exclude up to $250,000 ($500,000 for joint filers) of profit on the sale of your home from your income. However, you must have owned and lived in your home for at least two years to qualify for the exclusion. 5. Time your investment sales. If your income is higher than expected, sell some of your losers to reduce taxable income. If you will be selling a mutual fund, sell before the year-end distributions to avoid taxes on the upcoming dividend or capital gain. Also, you should allocate tax efficient investments to your taxable accounts and non-efficient investments to your retirement accounts, to reduce the tax you pay on interest, dividends and capital gains. 6. If you're retired, plan your retirement plan distributions carefully. If a retirement plan distribution will push you into a higher tax bracket, consider taking money out of taxable investments to keep you in the lower tax bracket. Also, pay attention to the 59 and one half age limit. Withdrawals taken before this age can result in penalties in addition to income taxes. 7. Bunch your expenses. Certain expenses must exceed a minimum before you can deduct them (medical expenses must exceed 7.5% of your adjusted gross income and miscellaneous expenses such as tax preparation fees must exceed 2% of your AGI). In order to deduct these expenses, you may need to bunch these types of expenses into a single year to get above the minimum. To achieve this, you might prepay medical and miscellaneous expenses on December 31 to get above the minimum amount. The most important thing is to be aware of the tax deductions and credits that apply to you and to plan for taxable events. And don't be afraid to ask for help. The benefits from consulting an experienced tax professional far outweigh the cost to hire that professional.
Kristine A McKinley, CPA, and Certified Financial Planner, is a fee-only financial planner. For more personal finance and tax tips, please visit our blog at http://beaconfinancialtips.typepad.com/financialtipsforwahms/
send email to kamckinley
Write a Review
Add to My Favorite
Refer it to Friend
Report Article
Other links owned by this user
If you sell on eBay, or if you have an online business, listen up. There are several tax issues in the news right now that could have a huge impact on the way you do business.
Category:
How many times have you done your taxes, and a week or a month later realized you forgot a deduction? Here are the top 5 overlooked tax deductions.
Category:
Do you run out of money before you run out of month? Do you wonder where your money goes each month? Do you struggle to find money to invest for retirement, emergencies and other financial goals? Here are 10 tips to cut your spending and stretch your doll
Category:
Building a comfortable retirement nest egg is easier than you think. Here are five steps to help you build a comfortable retirement.
Category:
Many people ask me if they are required to report the profits they earn on items they sell on eBay on their income tax return. In short, yes.
Category:
Most parents want to pay for their children?s college education, or at the very least help pay for college. Paying for both college and retirement will be challenging for most parents. Here are some suggestions to help you to achieve both goals:
Category:
Lack of cash flow planning is the reason why many businesses fail. In fact, many PROFITABLE businesses fail because of cash flow issues. Without adequate cash flow, you can?t pay your bills and you can?t make plans for your business.
Category:
Ah the holidays... a time for parties, over eating, and over spending. Americans routinely overspend during the holidays, often resulting in increasing credit card debt to go along with that increasing waistline from too much pumpkin pie. Here are ten tip
Category:
Saving for retirement is even more important for solo-entrepreneurs because you don't have a company sponsored pension plan or matching 401K contributions to rely on. There are many retirement plans available to self employed individuals and small busines
Category:
There's some debate among financial planners as to the best way to pay down debt. Some say paying the highest interest rate debt first is the best way; others say paying the smallest balance first is the best way. Both methods have advantages and disadvan
Category:
Are you paying too much in income taxes? Are you getting all the credits and deductions you are entitled to? Here are 7 tips to help you minimize taxes and keep more in your pocket:
Category:
The second quarter estimated tax payment is due in less than two weeks (June 15). Do you know if you need to make estimated tax payments? The federal income tax system is a pay-as-you-go tax system. That means you pay taxes as you earn income throughout t
Category:
Is it better to invest in a 401K or Roth IRA account to save for retirement?
Category:
Other links at Finance > Taxes
The United States is a nation of entrepreneurs. There are literally tens of millions of self-employed individuals that enjoy pursuing their dream business. Of course, few of you enjoy the paperwork and confusing tax issues that arise from owning your own
Category:
If you have had trouble managing your money, you may find yourself in debt to credit card and loan companies. It can be stressful and even embarrassing to be in this position, but the best approach is to confront the problem head on and try and work out
Category:
The threat of repossession is a real one to many people. When the economy is good, mortgage lenders are willing to lend many times your salary at low interest rates. If interest rates rise, however, or your experience job loss, sickness, divorce or
Category:
Federal tax laws exempt property up to two million dollars from estate tax. They also allow a one million-dollar lifetime limit for gifting property without attracting any gift tax.
Category:
Site Sponsor
Directory Statistics
Articles: 68252
Categories: 501
Yahoo Entertainment
