Round Tax Savings Strategies
Here are some ideas
that you can use throughout the year to make April 15th less taxing:
1. 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 need.
2. 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.
3. 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.
4. 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
5. Contribute to
your IRA early. The earlier you contribute, the sooner the earnings
become tax deferred.
6. Manage your
itemized deductions. If your level of itemized deductions is close
to what is needed to use them, consider bunching deductions every other
7. 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 loan interest.
8. 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.
9. Consider tax-exempt
bonds. The interest on bonds issued by state and municipal entities
is exempt from federal taxation.
10. 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