Individual Tax Saving Tools

Individual Tax Saving Strategies

Good amount of tax saving can be done following some basic rules. Tax saving put more money in your pocket and also provide financial freedom in future if you choose good investment and retirement plan while planning your taxes. Tax  planning is a continues process throughout the year than just visiting a CPA at the year end and give her all your tax info and expect her to make best out of it. Consult a good tax practitioner and spending some time with her/him to discuss your tax situation and your financial goals.

Tax planning does not have a specified format; it depends on the financial goals and need of an individual. Tax planning is tailor-made rather than readymade strategies.

However there are certain measures you might take which saves you some taxes and helps you acquire financial freedom in long run.

Here are few things you can do to save your taxes:

Contribute to employer sponsored retirement account – 401K, 403(b), etc.

Contribute to the retirement fund. If you have employer sponsored program contribute to the maximum you can. If you income is not high enough to contribute a larger sum, contribute at least equal to match to employer contribution. These contributions are not taxes. These reduce your taxes as well it will grow into a large sum at your retirement.

Contribute to Health Saving Account (HSA)

If you are healthy and think you do not need measure medical expenses take out High Deductible Health Insurance Plan that qualified for HSA. You can deduct you H S A from your taxable income. That saves you taxes.

Increase your paycheck withholding

Paying taxes at the end of the year or at once will make it harder for some so ask your employer to deduct extra if you think you will make some other income than your salary like dividends, capital gains, IRA distributions etc.  That may save you estimate tax penalties and interest also.

College Saving plans (529 plans)

Contribute to college saving plans for your kids or yourself. That will save you taxes in some states. That will reduce your state tax bills as well it will grow bigger and it is not taxes if it is used for higher education for you or your kids.

Open IRA Account

If you do not have employer sponsor retirement account open IRA account and contribute to the fullest limit.  IRA contribution can be deducted from your income. If you think your income will be higher after retirement, and then choose Roth IRA.

Capital Gain Planning

If you are planning to sell property or stock/securities in the end of the year, then check it if you are selling at loss or gain. If you already have a big gain and you are selling property with loss, sell that year. If you had loss in the year, then sell property with gain that year. If you already have big gain and selling more properties with gain, postpone it to next year if possible. In simple words try to set off capital gains with losses.

Take all deductions, credits and tax privileges

Try to maximize your tax saving by taking all the deductions. Home mortgage interest, property tax, vehicle tag, sales tax on vehicle purchased, donations, medical bills paid, medical insurance, etc.

Take credit like Solar Credit, Child Tax Credit, Dependent Care Credit, Adoption Credit, Electric Vehicle Credit etc.

Elect Trader’s tax Status

If you trade stock as your primary occupation, go for Trader’s Status. Traders can deduct trading expenses as business expenses but investors cannot.

Self employed

    1. Open SEP/SIMPLE IRA account. You can deduct the contribution from your income.

    2   Buy necessary equipment and assets for you business and take advantage of sec 179 depreciation (write them off during the year)

    3.      Take advantage of Home office expenses

    4.      Take auto mileage used for the business

    5.      Keep track of all your business expenses

    6.      Take self-employed health care deduction

    7.      Deduct half of your self-employment taxes

    8.      Keep track of your inventory and deduct them from income

File Taxes on time

Filing taxes on time saves you penalties and interest. Moreover, you may be eligible for some tax or other government benefits if you file taxes.

Above are the few basic ideas that can be implemented to save taxes. However, it is advisable to consult your tax professional to get clear idea on how it works.

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