| Are you paying too much in income taxes? Are you | | | | before the year-end distributions to avoid taxes on the |
| getting all the credits and deductions you are entitled | | | | upcoming dividend or capital gain. Also, you should |
| to? Here are 7 tips to help you minimize taxes and | | | | allocate tax efficient investments to your taxable |
| keep more in your pocket: | | | | accounts and non-efficient investments to your |
| 1. Participate in company retirement plans. Every dollar | | | | retirement accounts, to reduce the tax you pay on |
| you contribute will reduce your taxable income and | | | | interest, dividends and capital gains. |
| thus your income taxes. Similarly, enroll in your | | | | 6. If you're retired, plan your retirement plan distributions |
| company's flexible spending account. You can set | | | | carefully. If a retirement plan distribution will push you |
| aside money for medical expenses and day care | | | | into a higher tax bracket, consider taking money out of |
| expenses. This money is "use it or lose it" so make | | | | taxable investments to keep you in the lower tax |
| sure you estimate well! | | | | bracket. Also, pay attention to the 59-½ age limit. |
| 2. Make sure you pay in enough taxes to avoid | | | | Withdrawals taken before this age can result in |
| penalties. Uncle Sam charges interest and penalties if | | | | penalties in addition to income taxes. |
| you don't pay in at least 90% of your current year | | | | 7. Bunch your expenses. Certain expenses must |
| taxes or 100% of last year's tax liability. | | | | exceed a minimum before you can deduct them |
| 3. Buy a house. The mortgage interest and real estate | | | | (medical expenses must exceed 7.5% of your |
| taxes are deductible, and may allow you to itemize | | | | adjusted gross income and miscellaneous expenses |
| other deductions such as property taxes and | | | | such as tax preparation fees must exceed 2% of |
| charitable donations. | | | | your AGI). In order to deduct these expenses, you |
| 4. Keep your house for at least two years. One of the | | | | may need to bunch these types of expenses into a |
| best tax breaks available today is the home sale | | | | single year to get above the minimum. To achieve this, |
| exclusion, which allows you to exclude up to $250,000 | | | | you might prepay medical and miscellaneous expenses |
| ($500,000 for joint filers) of profit on the sale of your | | | | on December 31 to get above the minimum amount. |
| home from your income. However, you must have | | | | The most important thing is to be aware of the tax |
| owned and lived in your home for at least two years | | | | deductions and credits that apply to you and to plan |
| to qualify for the exclusion. | | | | for taxable events. And don't be afraid to ask for help. |
| 5. Time your investment sales. If your income is higher | | | | The benefits from consulting an experienced tax |
| than expected, sell some of your losers to reduce | | | | professional far outweigh the cost to hire that |
| taxable income. If you will be selling a mutual fund, sell | | | | professional. |