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Money: How to Save Money on Your Taxes: What Only A Tax Advisor Knows
Source:
aymag.com
- Dec 13, 2011
By: Carla Spainhour
As Americans, we are all familiar with paying taxes whether it is income tax, sales tax, real property tax, personal property tax, gift tax or estate tax. One thing is certain, though: none of us wants to pay more than “our fair share.”
In December 2010, Congress had a major debate over many of the income and estate taxes and much discussion ensued regarding whether to extend the “Bush tax cuts,” many of which were scheduled to expire Dec. 31, 2010. Ultimately, Congress voted to extend them for two more years. Perhaps you want to consider some of these suggestions to increase your family’s bottom line:
1. Boost Your Retirement Plan Contributions.
One of the best ways to save on taxes is to contribute the maximum amount possible to your company’s retirement plan. These contributions are not included in one’s taxable income. You can contribute $16,500 to your 401(k) for 2011 (plus another $5,500 if you are over age 50). Companies will often match your contribution, so you will have additional monies for retirement.
2. Accelerate Capital Gains Income.
Most tax professionals would agree that capital gain taxes are probably at an all-time low, at least for the next two years. You may want to consider selling these assets so the gains are taxed at current capital gains rates of 15 percent (as opposed to higher ordinary income rates).
3. Buy that Second Home.
Consider buying that vacation home you have always wanted. Mortgage interest and property taxes remain deductible and will help reduce your taxes. The rules are much different if you decide to use the home personally and rent it, too, so be sure and consult your advisor.
4. Think about Investing in Tax Free Bonds.
The interest earned is not taxable, and currently the yields are much greater than traditional savings accounts; be sure to check the bond rating.
5. File on Time.
If you cannot pay all the income tax you owe this year, you should go ahead and file your return by April 15 (Oct. 15 if properly extended). The failure-to-file penalty is one of the stiffest the IRS imposes and can run up to 25 percent of the tax due.
6. Give it Away.
As of Jan. 1, 2011, in addition to the $13,000 annual gift tax exclusion that is available every year, you could give away $1,000,000 during your lifetime without paying gift tax. Effective Jan. 1, 2011, individuals can give up to $5,000,000 each without paying any gift tax.
7. Take Your Required Minimum Distribution.
Do not forget if you are older than 70 ½, you must begin taking a minimum distribution from your IRA and qualified plan, if applicable. If you do not, the IRS can penalize you by making you pay a penalty of up to 50 percent of the required minimum distribution in addition to the tax.
8. Consider Being the Bank.
If you have a significant amount of cash, consider making a loan to your children to help them buy that first home, continue their education or even buy part of the family business. If the loan is less than $10,000, you do not have to charge any interest. If it is more than $10,000, the IRS requires that you charge at least a minimum rate of interest, which they publish monthly.
9. Go Back to School.
Ask your employer to send you back to school. Companies can offer an employee educational assistance of up to $5,250 per year, and the employee does not have to report this as income.
10. Consider Pre-Tax Contributions.
Consider making tax contributions to pre-tax accounts, such as IRAs, Health Savings Accounts, Flexible Spending Accounts, Dependent Care Accounts and 529 plans. These pre-tax accounts can offer significant tax savings.
One of the best pieces of advice on saving taxes is to be proactive and not wait to discuss planning opportunities with your tax advisor. Hopefully, you too, will not pay more than “your fair share” this year!
Category: IRS
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