Top 7 Methods to Minimize Your Income Taxes
Are you paying an excessive amount of in income taxes? Are you getting all of the credits and deductions you are eligible for? Here are seven tips to help you reduce taxes and keep more in your wallet:
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 versatile spending account. You can set aside money for medical costs and day care costs. 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 in the event you do not pay in at least 90% of your current year taxes or 100% of last year's tax liability.
3. Purchase 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 a minimum of two years. One of the best tax breaks available these days is the home sale exclusion, which permits you to exclude up to $250,000 ($500,000 for joint filers) of profit on the sale of your house from your income. Nevertheless, you must have owned and lived in your home for a minimum of 2 years to qualify for the exclusion.
5. Time your investment sales. In case your income is higher than expected, sell some of your losers to cut back taxable income. In the event 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 are retired, plan your retirement plan distributions cautiously. If a retirement plan distribution will push you right into a higher tax bracket, consider taking money out of taxable investments to help keep you in the lower tax bracket. Also, take noticeto the 59- age limit. Withdrawals taken before this age can result in penalties in addition to income taxes.
7. Bunch your expenses. Particular costs should surpass a minimum before you can deduct them (medical costs must exceed 7.5% of your adjusted gross income as well as miscellaneous costs such as tax preparation fees should exceed 2% of your AGI). In order to deduct these expenses, you might need to bunch these kinds of costs into a single year to get above the minimum. To achieve this, you may prepay medical and miscellaneous expenses on December 31 to get above the minimum amount.
Probably the most essential thing is to be aware of the tax deductions and credits that apply to you and also to plan for taxable events. And don't be frightened to request for aid. The benefits from talking to a skilled tax professional far outnumber the expense to employ that professional.
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 versatile spending account. You can set aside money for medical costs and day care costs. 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 in the event you do not pay in at least 90% of your current year taxes or 100% of last year's tax liability.
3. Purchase 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 a minimum of two years. One of the best tax breaks available these days is the home sale exclusion, which permits you to exclude up to $250,000 ($500,000 for joint filers) of profit on the sale of your house from your income. Nevertheless, you must have owned and lived in your home for a minimum of 2 years to qualify for the exclusion.
5. Time your investment sales. In case your income is higher than expected, sell some of your losers to cut back taxable income. In the event 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 are retired, plan your retirement plan distributions cautiously. If a retirement plan distribution will push you right into a higher tax bracket, consider taking money out of taxable investments to help keep you in the lower tax bracket. Also, take noticeto the 59- age limit. Withdrawals taken before this age can result in penalties in addition to income taxes.
7. Bunch your expenses. Particular costs should surpass a minimum before you can deduct them (medical costs must exceed 7.5% of your adjusted gross income as well as miscellaneous costs such as tax preparation fees should exceed 2% of your AGI). In order to deduct these expenses, you might need to bunch these kinds of costs into a single year to get above the minimum. To achieve this, you may prepay medical and miscellaneous expenses on December 31 to get above the minimum amount.
Probably the most essential thing is to be aware of the tax deductions and credits that apply to you and also to plan for taxable events. And don't be frightened to request for aid. The benefits from talking to a skilled tax professional far outnumber the expense to employ that professional.
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posted by Vittoria @ August 17, 2011
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