Tax Planning - Pay Less Taxes Overall
Strategies to Legally Pay less Tax,
No one gets out of paying taxes in the United States, but there are a few things to consider that could possibly make what you pay a little less in taxes. You can't just not file your taxes, as that would be breaking the law. Things like tax deferred or tax exempt investments, and taking full advantage of the tax laws are some things to consider. Year end tax planning can help as well.
Tax Deferred basically means that you don't owe on your earnings right now, if you don't have access or use of the money now. Money you earn that goes into deferred investments like a 401K or 403B or other retirement plans that qualify, can have the taxes held off to pay later when you withdraw the money. Certain IRAs and some annuities can also have the taxes deferred. I like this if for no other reason than I don't know what the future holds, so its possible I may never have to pay taxes if I am not around to use the money anyway. That makes sense to me. It will just take some planning ahead to know that you have to have enough to set aside to pay up when that time comes. One more way to look at it is that your tax rate most likely will be lower, so you will owe less.
Tax Deferred and Tax Exempt
Its possible to defer taxes that appreciate in value, just so long as you hold on to those investments. If you buy a certain stock, say for 7 dollars a share, and it goes up to 45 dollars a share, you only owe tax on that when you sell it.
Tax Exempt means that no taxes are due, period. Most tax exempt income is interest paid on municipal bonds (sold by local or state governments). You might live out of the state where bond was issued, and so you probably won't owe federal taxes on that interest you earn. You will owe them in your own state, however.
Selling Securities and Home Equity Loans
Some people avoid taxes on some or on all of their capital gains by selling their securities that are losing money. This is especially true if you think they are not worth holding on to for whatever reason. These kinds of losses might turn out to be valuable in offsetting your gains. Sometimes, it offsets your regular income as well. It is definitely something to think about.
On home equity loans, the interest is often deductible. The interest on consumer loans and credit cards are not, obviously, so it might pay to use your home equity credit if you really need to borrow some money. The main thing to watch out for in this case, is that you don't want to end up owing more than you feel comfortable repaying.
More by this Author
Trusts can be a great way to shelter money for your heirs, and also a great way to help provide for those that need it. A trust is a legal entity that earns income, pays taxes, and then distributes the earnings. There...
Many people don't think about the need for a power of attorney until they absolutely have to. Others do like to plan ahead financially in every way, or see others that have had a use for power of attorney and make...
The power of an encouraging word or thought should not be underestimated. Consider sending a note or card of encouragement to someone today. Here I share my thoughts and ideas.