Simple Tips to Reduce Your Taxes
Its
November, the leaves are turning orange, the nights are getting chilly, the Halloween decorations are coming down and it's TAX TIME. What? Tax time? Yes, it is time to begin organizing your tax return
now. Don't' wait until April 14th like last year. Instead if you start now, you may spot some potential tax-saving strategies to lower your taxable rate. I am not going to get into how to go through your paperwork and organize it. That area is unique to each individual and is best handled by you or your tax
accountant. However, I would recommend that you organize your taxes on a spreadsheet program or a financial program like Quicken so you can later transfer the information to a Quicken or similar type tax
program. Also, while you set up your taxes for this year you might consider setting up your taxes for the next year by labeling envelopes, files, diskettes, computer files or whatever system you use. Start
using your system at the beginning of the New Year to relieve some of the stress (sorry, no magic potion to relieve it all) come April 15th. Don't wait until you can't remember or can't find where you
put those important documents or receipts.Why should you start getting organized now? If you are expecting to receive a tax refund from the government, you will want to file early in
order to receive YOUR money as soon as possible. Don't forget; it is YOUR money - you earned it and the government is only holding it until you file your return. Don't leave your money in the government's
pockets. All the time it sits there, it doesn't earn you any interest income. When you receive your refund, you can pay down or pay off some high interest credit card debt. If you pay it off earlier rather
than later, then you will be saving a lot of money in future interest payments. You can invest the money and start getting your money making you money instead of sitting in the government coffers doing
nothing. If none of that sounds exciting enough for you, then go on a Hawaiian vacation. Some Potential Tax Write-offs:
- Donate an older car to a Nonprofit Organization and take a tax-deductible donation off your income.
Many organizations would gladly accept your older car for their use. Also, you will be able to
save money by not having to insure and register the car in the upcoming year.
Donate items that you don't need or use anymore to an Organization such as Goodwill or Salvation Army. Go through your rooms, closets, cabinets, garage and lawn sheds. Remove items that are no
longer needed or items that you don't use anymore such as: appliances, linens, clothes, toys, tools, books, furniture, etc. You will be able to take a tax-deductible donation off your income for
these items. Plus you will be giving new life to these items to someone who might need them more than you will.
Sell a losing stock position to offset some of your capital gains. Have you been hanging onto that stock that never seems to come back? Unfortunately, we can't breathe new life into the stock,
but you may want to offset the loss against your capital gains and reduce your taxable income. Additionally, you can take up to a $3,000 loss against ordinary income. Any additional loss over $3,000
can be carried forward and applied in following years.
Put money into your retirement plan. Depending on your income tax bracket and your particular tax situation, you may be able to reap a substantial tax benefit while increasing the amount of money you
have for retirement by paying into your IRA, 401k or whatever retirement program in which you participate. For example, if you are in the 28% income tax bracket and you can make a $2,000 tax-deductible
payment into your retirement plan, you will save $560 off your taxes and have added $2,000 to your retirement. Your net cost of putting money into your retirement plan is $2,000 - $560 = $1,440.
Imagine this: you get the benefit of $2,000 compounding over time for only $1,440. WOW!
Don't wait until the last minute to file your tax return and stress out with the pressure. It is never too early to start organizing for you tax return if you are expecting a tax refund from the
government. File early - take advantage of YOUR money and put it to work for you! |
