Top 7 Ways to Minimize Your Income Taxes

Are you paying too much in income taxes? Are youbefore the year-end distributions to avoid taxes on the
getting all the credits and deductions you are entitledupcoming dividend or capital gain. Also, you should
to? Here are 7 tips to help you minimize taxes andallocate 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 dollarretirement accounts, to reduce the tax you pay on
you contribute will reduce your taxable income andinterest, dividends and capital gains.
thus your income taxes. Similarly, enroll in your6. If you're retired, plan your retirement plan distributions
company's flexible spending account. You can setcarefully. If a retirement plan distribution will push you
aside money for medical expenses and day careinto a higher tax bracket, consider taking money out of
expenses. This money is "use it or lose it" so maketaxable 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 avoidWithdrawals taken before this age can result in
penalties. Uncle Sam charges interest and penalties ifpenalties in addition to income taxes.
you don't pay in at least 90% of your current year7. 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 itemizeadjusted gross income and miscellaneous expenses
other deductions such as property taxes andsuch 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 themay need to bunch these types of expenses into a
best tax breaks available today is the home salesingle year to get above the minimum. To achieve this,
exclusion, which allows you to exclude up to $250,000you might prepay medical and miscellaneous expenses
($500,000 for joint filers) of profit on the sale of youron December 31 to get above the minimum amount.
home from your income. However, you must haveThe most important thing is to be aware of the tax
owned and lived in your home for at least two yearsdeductions 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 higherThe benefits from consulting an experienced tax
than expected, sell some of your losers to reduceprofessional far outweigh the cost to hire that
taxable income. If you will be selling a mutual fund, sellprofessional.