Now that you are at the end of this year, it is time to plan and learn how best you can save some money on your taxes. There are several ways and means through which you can save quite a lot of money that would otherwise have to be paid towards your tax obligations. Here are a few tips that will help you through the coming year.
Defer your income to the next year
Income for a particular year is normally taxed the same year. However, if there is an option to defer it to the next year, why not do so? However you may not be able to defer your salary and other income, but can be deferred is the year-end bonus that you are entitled to. This is a great option if you are employed and the bonuses are paid towards the end of the year. In case you are a freelancer or a consultant, you can delay receiving payment and allow it to move over to the next year. You can also opt for capital gains for the next year instead of the current year. It is important to remember, that the tax obligation has to be met in the course of the next year.
Opt for the tax-deductions that are offered
There are many ways in which you can deductions on your taxable income. You could contribute towards any charitable fund, enjoy the tax benefit, and have the added sense of fulfilling your philanthropic urge. You have the option of donating not just cash but any other financial instrument you possess, like property or stock. If you have owned either for over a year, the tax benefits that accrue are automatically doubled.
Don’t be mired with Alternate Minimum Tax
Sometimes trying to be smart can play havoc. You could trigger the Alternate Minimum Tax obligation if you are not already in the bracket. Though this was created to ensure that the wealthier few do not slip through their tax obligations, it could affect middle class people as well. Alternate Minimum Tax is computed separately, and does not go by the rules that apply to your regular tax liabilities. Whichever works out to be higher, is what is taken into account.
Get rid of the poor-return investments
If you have invested in stocks or mutual funds the past year, check their current quotes in the market. If you find that, they have not done too well the past year and are actually being quoted at a much lower price than you acquired them at, it is time to sell them at a loss and offset any taxable gains. In case your losses are more than your gains, you can use the difference to cover other income as well.
Save through retirement benefit plans
If you are not already contributing towards a retirement benefit plan, it is high time to start. These investments are tax free and will stand you in good stead in your old age. Company sponsored plans are preferable as the employers contribution is equal if not higher that what you put away.
Stay away from the kiddie tax
The government enforced the kiddie tax rules in order to dissuade rich parents from moving the tax bill to the kids account which has a lower tax bracket. However, there is a ceiling of $1900 and sums exceeding that attract the same rates of taxes as parents’ rate. You may be inadvertently getting into something that you did not bargain for and any investment in your kid’s name made for his or her benefit might attract the same rate of tax.
Contribute towards IRA
Start making the minimum withdrawals from your individual retirement account plans by the April 1 soon after you cross 70 1/2 years of age. If you fail to do that, you are eligible to pay a penalty .
This is a guest post by Ethan Millers of bw9.com, a site that offers savings and current information on comcast cable and internet, the best in home cable and internet providers.
I'm Louida from Atlanta, Georgia and I'm a mother of two daughters, blogger, and full time working mom at a Business Consulting Firm.
I love helping others learn how to start working from home on the internet free to supplement their current income.
I also blog at Productreviewmom.com
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