Tax time is probably not the best time to seek out the latest tax saving tips. At that point, new saving tips will have little impact on your pending tax bill. Don’t worry; there is always next year. Here are some basic tips to keep in mind for the upcoming year, to help you save money on taxes.
Collect receipts from your wallet at least weekly and maintain them in a safe place. You should also store all bank records and donation documentation in this file.
Learn about all of the deductions to which you are entitled. Parents, homeowners and others receive significant deductions under proscribed circumstances.
Take all appropriate tax benefits
For every child under the age of 17, there may be a tax credit. There are also various other credits, such as those available when you adopt a child or when you elect to claim a Lifetime Learning Credit.
Take a loss
If you’ve done well with your investments and are looking at definitive money gains, before the year-end is the time to adjust some of those profits by selling a losing maneuver. Also, keep in mind; you can carry forward up to $3,000 from previous years’ losses.
Concentrate on tax-free investments
Tax-free investment returns may not be very high, but if you are searching for a secure, tax-favorable investment, consider municipal bonds or tax-free government, among other similar investments. This type of investment is particularly good for a high-income individual.
Keep in mind about charitable donations
While contributions should not be made directly for tax purposes, but for humanitarian reasons, you can always make a couple of more donations at year-end to minimize your tax bite. Remember to get receipts.
Max out your IRA or other retirement plan endowments
Of course, by doing so you believe that your personal income will be deceased when you extract the money. While that may or may not be the case, it’s safe to remark that, if there are a number of years until you begin taking distributions, the tax laws will probably alter many times over between now and then — sometimes in your favor.
The Retirement Age – Plan Ahead
Even if Social Security funds do not run out by the time you retire, inflation will make what funds you receive insufficient as a sole means of income. With rising health care costs, insurance rates and the ever-increasing population, you will need to make sure that you start saving today in order to have a comfortable lifestyle later.
Saving for retirement has many immediate benefits. First and foremost is the peace of mind that you will have something stored away for that time when you want to enjoy the golden years. Another great benefit is the security of having savings now, in the event of a real emergency or catastrophic event in life. Also, some retirement plans allow you to borrow against the balance in order to purchase a main home. Saving for retirement now can only lend good things later.
Another of the great benefits to saving for retirement is the tax breaks that you can take advantage of every year you save. Adjustments and credits for retirement saving can lower your tax liability now. IRA’s, employer sponsored retirement plans, and other types of retirement allocations are generally made from pre tax income. If you are concerned about a rise in taxes later in life, this continued practice would help ease back the increase.
Roth IRAs are another great investment tool. While Traditional IRAs are funded with pre-tax dollars, Roth IRAs are funded with after tax dollars, so there is no immediate tax benefit. However, since you have already paid taxes on your contributions now, you don’t have to pay taxes on your contributions later in life when you start withdrawing the funds. Keep in mind that any earnings your contributions have made will be new income and be taxed at whatever the rate is at the time of withdrawal.
Talking with a financial advisor or tax professional will help you in deciding what options or combination of options are available to you and would help you both now and in the future. No matter how you choose to save money, do it and do it consistently. Remember that a penny saved is a penny earned and that penny can turn into a dollar in the right hands. Save for the retirement age, now and everyday.
Getting all the Tax Breaks you have Coming
A surprising number of Americans pay too much tax by not taking advantage of legitimate tax breaks to which they are entitled. And what’s more, most Americans are giving Uncle Sam a tax-free loan by setting their paycheck withholding too high.
Of course, it’s nice to get a big tax return check — but remember, that was your money to begin with. Having too much withheld out of your weekly checks, only to get it back after a year without interest, is foolhardy when you could be using that money to generate income in an interest-bearing account or other investment. Set your withholding at the proper amount, don’t request extra to be withheld unless you expect to have other income you will have to pay taxes on.
Everyone knows about the mortgage interest deduction, one of the most sacred cows of all. But don’t forget, in addition to the interest, you may also deduct “points” the mortgage lender charges you when you obtain the mortgage. Similarly, prepayment penalties are deductible, as are moving costs if you move to take a new job.
Medical expenses are deductible only for those that exceed 7.5 percent of your adjusted gross income, but there’s a way around that called a Health Savings Account. This is a special account you purchase along with a high-deductible health insurance policy, and the pre-tax money you put into this account is all tax deductible, without regard to the 7.5 percent rule.
Don’t forget business travel. If you drive your car for business, keep a mileage log. At the end of the year, this can add up to a sizable deduction. And if you work at home, don’t forget you can take a deduction for the part of your home that you dedicate to your work space.
When tax time comes, don’t assume that you can’t file the long form. It will take more time, but calculate your tax bill using both short form and long form. And if you’re an investor, there’s a whole category of items you can write off, including investment fees, and even subscriptions and journals that relate to your investment activity. If you buy stocks “on the margin,” the interest you pay may be deductible.
Most of us too are drowning in credit card debt, and credit card interest is no longer tax deductible. Convert that credit card debt into a home equity loan and you can deduct the interest. And if you’re out of work, job-hunting expenses are deductible, so keep track of the money you spend on resumes and postage, travel to interviews, or even schmoozing someone at lunch to get job leads.
There are also some deductions available that the government has created to encourage certain industries or types of behavior. Consider buying a “hybrid” gas/electric automobile, and take a hefty tax deduction.
Tax planning advice is almost always good, and professionals can verify the validity of your deductions for you and probably come up with more. And the money you pay to your tax professional is also deductible.