10 WAYS TO SAVE ON YOUR TAXES

Page 1

1: Get Organized
The absolute first step in the process to cut your tax bill is to get organized. That’s right, get organized. While this may sound basic, you would be surprised at how much it cost to be lazy. When it comes right down to it, the reason that most people have a difficult time with taking advantage of all the tax cuts that they are entitled to is because they are too lazy to actually take the time to document and organize their expenses. This can mean a lot of money in the form of lost tax deductions.

Whenever possible, document your expenses. For example, record mileage for business or charity in a book that you keep in your car. When you make charitable contributions, get a receipt. That may sound strange to ask for a receipt when making a contribution to a charity but believe me, they have been asked for it before and they will be asked for it again. The key is to
do it while you’re thinking about it rather than putting it off until later. Chances are you will forget and I can assure you that the IRS will not just take your word for it. When in doubt, document.

2: Contribute the Maximum To Retirement
This is perhaps a bit presumptuous to state that you should maximize your contributions to your retirement accounts. The first step is to make sure that you have actually established a retirement account. If you haven’t, you are missing out on perhaps the greatest tool available today for creating wealth. Not only are the contributions you make into the account potentially deductible, once they are placed into the plan any income generated with these funds is not taxed until they are taken out. At that point, you are only taxed on the amount you pull out, not on the capital gains and growth up to that point. It is truly an amazing way to build wealth and get some great tax relief at the same time. For that reason, you need to contribute as much as you can. Make sure to check with your employer early on in the year to ensure that you are getting the maximum benefit possible.

3: Do Things Early in the Year
There are really two points that I want to make here when it comes to reducing your tax bill. The first is that you need to contribute to your IRA early in the year. Instead of waiting until the end of the year, put your contribution into your IRA in January. While it may not seem that this will make that much of a difference, those few extra months can make a huge difference in the long run. The miracle of compound interest can turn this small amount of money into a large chunk when you do this on a regular basis.

The second point is that you need to sell your stocks and funds early in the year. For maximum advantage, any capital gain deferred from last year should be taken as early as possible. Make sure that you avoid penalties by paying the required amount of estimated quarterly taxes. The benefit here is that you can now invest the money until it comes time to pay the taxes on it which can be over a year from that time. One key thing to remember is to invest these funds in something short-term so that the money will be available when you need it. By taking care of things early you can gain the use of the money for a longer period of time which can mean more in the form of income.

4: Make Gifts to Children and Grandchildren
One of the best strategies for those with substantial assets is to give cash to children and grandchildren to get it out of their estates in order to avoid monstrous estate taxes. The great thing about this is that the gift does not affect the amount excluded from estate taxes upon your death. This can be implemented even more effectively through the use of legal entities such as the family limited partnership.

Remember that the earlier in the year that you make the gift, the better it is for keeping money in the family. Generally, children and grandchildren are in a lower tax bracket than the parents and grandparents. This enables them to pay less in taxes on the gains from that money which often times was going to be given to them eventually anyway.

5: Noncash Charitable Contributions
One of the most overlooked deductions is that of noncash charitable contributions. Did you give that old couch to Goodwill? How about those clothing items you gave to the Salvation Army? Don’t forget to get receipts and deduct the fair market value of those items as charitable contributions.

Page 2