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Year Round Tax Savings Strategies
Year Round Tax Savings Strategies
Here are some ideas that you can use throughout the year to make April 15th less
- Be organized. Having your records in a usable manner will make preparing
your return easier and may help you with deductions you might have forgotten about.
Consider using a software program like Quicken or Microsoft Money to keep you
organized. You should also keep a file of receipts and other records you know you will
- Be sure to contribute to your 401(k) plan. By deferring wages into your
plan, you will keep your taxable income lower, save money for retirement, enjoy the
benefits of tax-deferred compounding of earnings within the account and probably get
some form of "match" from your employer.
- Use proper withholding and estimated payments. While getting a large tax
refund is nice, it usually is not too smart to let the government hold your money until
they refund your overpayment. There are rules about how much you must have withheld or
paid in estimates to avoid IRS penalties. You may want to consult with your accountant
to make sure you are properly covered.
- Consider giving appreciated stock to charities. If you plan to make
significant contributions to a charity and have some stocks you are holding at a gain,
you may want to consider giving the stock instead of cash. You can get a charitable
contribution for the fair market value of the gift and not have to pay tax on the
capital gain. There are some rules that apply, so consult your advisor.
- Contribute to your IRA early. The earlier you contribute, the sooner the
earnings become tax deferred.
- Manage your itemized deductions. If your level of itemized deductions is
close to what is needed to use them, consider bunching deductions every other
- Use tax-advantaged borrowing. Not all interest you pay is tax deductible.
The interest paid on your mortgage and home equity loans gets treated better than
interest paid on credit cards. Also, there may be some tax deduction benefits to margin
- Be careful of mutual fund taxation. Even though mutual funds pay no income
taxes, you as a shareholder must report all distributions you receive. Mutual funds
must distribute dividends, interest and net capital gains. If your fund has experienced
much turnover within the portfolio, there may be capital gain distributions regardless
of whether the fund's value has increased or fallen.
- Consider tax-exempt bonds. The interest on bonds issued by state and
municipal entities is exempt from federal taxation.
- Get help early if you have any complications. If you have stock options,
think you may be subject to the alternative minimum tax or are expecting any unusual
tax items, talk to your tax advisor early in the year. Proper planning may help you
avoid unpleasant surprises next tax season.
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