IRS can take the joy out of Easter and zing out of spring. With planning, though, you can save money on taxes and ease the pain.
A few ways to trim your tax bill:
Hang on to more of your earnings during the year. While the prospect of getting a nice, fat check from Uncle Sam at the end of tax season seems great, you might be better off financially if you don’t overpay estimated taxes. Have smaller amounts deducted from your salary for taxes. Then, invest the excess each month to earn interest, dividends or capital gains. The government doesn’t give you any perks when you send extra cash to Washington over the course of a whole year. There’s no need to give them an interest-free loan.
Contribute to retirement accounts. Contributing to retirement accounts is one of the best ways to save on taxes. You can save some of your money, as well as watch it grow tax-deferred, through several different IRS-qualified retirement plans. Topping the list are company-sponsored 401(k) plans, especially when money you save is matched by your employer. Other retirement account options include traditional IRAs, SIMPLE, SEPs and 403bs.
Max out tax-deferred investments. Besides saving tax money through 401(k)or traditional IRA accounts, you pay less in taxes with a Roth IRA. Only after-tax earnings can be put into Roth accounts, but you won’t owe taxes while your money grows – or when you withdraw it later. You can own more than one type of tax-deferred account.
Consider a Roth conversion. If your traditional IRA grows by leaps and bounds during your working years, you may want to consider converting some of its funds into a Roth IRA. When you retire, a Roth IRA allows you to withdraw money tax-free. You’ll pay taxes on every penny you take out of traditional IRAs, so it’s smart to have at least one tax-free source of income later in life.
Get rid of bad investments. Up to $3,000 in losses in stocks or mutual funds can be claimed on your tax return annually to offset any taxable gains dollar for dollar. Losses can also be carried over or spread through tax years.
Make an extra payment toward your mortgage. If you make an extra house payment each year by December 31, you can add that additional home-loan interest to your end-of-year tax deductions, saving a few bucks in loan interest, as well as in taxes.
Clean house – and make donations. Recycling tangible property, like clothing, furniture or household gadgets, can help you save in taxes, too. Get receipts when you take things you no longer need to thrift shops or second-hand stores. You can deduct the resale value of anything you donate from your closet, garage, basement, or attic.
File your own taxes with computer software. You can usually save a few hundred dollars or more by filing your own taxes with a well-designed tax preparation software package, available online or in office supply stores.
For further details on ways to save or IRS limits on tax deductions, call Ron VanSurksum at 616-531-5220.
Manage Your Money . . . helpful financial facts provided for you by Advancd Asset Management LLC
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