Sunday, February 23, 2020
League of Power

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Stop Paying Taxes Legally…10 Tips On How to Stop Giving Uncle Sam His Cut

September…October…November…December. Before you know it the end of the year will be upon us. In fact you only have 118 days left!

At the dawn of September we think about fall and getting back into normal routines with school, work, kids sports, football season, and colder temperatures. But what we don’t think about is the fact that time is running out.

In truth it is…there is very little time left to cut Uncle Sam out of our tax bills. We usually don’t think about taxes until March and April, which quite predictably we call tax season.

This year I want you to think differently though. I want you to think about your taxes now. Not because I’m a sadist or I want to stress you out unnecessarily, but because I want you to SAVE as much money as you can. Let this year be the year that you (legally) smack Uncle Sam’s hand away from your honey pot.

If you follow what I’m about to detail you can (legally of course) save yourself a boatload of cash that would otherwise go to the government in the form of taxes. To do so takes a little bit of advanced notice and planning. This is why I am telling you about it four months before the end of our fiscal year. Apply just one of these ten strategies each month for the next four months and watch next year as your tax bill comes in more affordable and less shocking than any previous year. What have you got to lose! Try just one if you are unsure. But smart investors will try to apply as many as possible before December 31st rolls through.

The whole idea here is to reduce your tax bill so you’ll have more money in your pocket to with what you like.  To do this I’m going to ask you to spend money so you can save money. I know it sounds counter-intuitive but really it’s not because the money that I’m going to recommend you spend before December 31st will benefit you in multiple ways.

For example, if you can swing it send the bank an extra mortgage payment before the end of the year. The extra money you spend will benefit you in two ways. One you are paying your mortgage off that much faster thus reducing the amount of interest you’ll pay over the life of your loan. Two, any mortgage interest you pay this year will reduce your tax bill. It’s a double edged sword of the good kind.

P.S. This works with you real estate taxes too. Most of us homeowners get our tax bills in the mail in the fall (just got mine last week), but they don’t become due until early next year. Pay all or as much as you can before 2013 so you can deduct the amount from your taxes!

The same idea (and double benefit) applies to maxing out your retirement accounts. If at all possible fund your retirement accounts like your IRA and/or 401(k) to the maximum levels allowable this year. Even though you’ll be spending money, you’ll be spending the money on yourself and your future. Plus, the money that you contribute will reduce your tax bill, depending on what type of retirement account you have.

If you are relatively young or predict that you will make more money in the coming years converting your IRA to a Roth IRA makes a lot of sense. Withdrawals from traditional IRA’s are taxed at the same levels as the rest of your ordinary income, while all withdrawals from Roth IRA’s are tax-free and penalty-free as long as you’re at least 59 and ½ and the converted account was opened at least five years ago. Having a Roth IRA allows you to take advantage of the compounding effects of any contributions you make on a tax-free basis!  The caveat is that you cannot deduct your yearly contribution from your taxes like you can with a regular IRA and if you converted you will have to pay taxes on any earnings you’ve made this year. But you’ll be paying taxes at current tax rates, which are unlikely to ever go lower.

Like I said earlier there are income limitations to contributing to a Roth IRA. If you are married and file jointly the limitations start when you make more than $178,000 and if you are single the limitations start at $112,000. Don’t worry if you or your family makes more than either of these amounts yearly, there are still other tax shelters you can use for your retirement. Contributing to a 401(k) or other defined contribution plan set up by your employer will still reduce your tax bill and help you prepare for retirement. This year, workers can contribute up to $17,000 to defined contribution plans. Workers 50 and older can contribute up to $22,500. That’s a lot of tax saving money!

If you make your money freelancing or if you own your own company you have a bit more flexibility when choosing how to shelter your money from dear old Uncle Sam. You can choose a Simplified Employee Pension plan (SEP) or a Keogh depending upon how much you make. You can contribute up to 13 percent of your income in a SEP and other profit-sharing plans and up to 20 percent in a Keogh. Uncle Sam allows you to shelter up to $30,000 per year in a mix of these types of plans, which is nearly double the allowance of a 401(k) plan, yet another reason to open your own internet business…the tax saving benefits are much better.

Are you out of luck if you don’t yet own your own business and still work for the man? Nope, there are some job related expenses you can deduct to reduce how much you’ll owe in taxes next year, but you’ve got to act before the end of the year to realize them.

Did you go back to school this year to further your education and possibly get a better job in the future? If not enroll now. Any money you spend will benefit you in the form of a higher salary down the line. Plus as long as the education you receive is required by your employer or the law to keep your present salary, status or job or the education maintains or improves skills you need in your present work you can deduct the costs of getting said education. Uncle Sam allows you to deduct fees for tuition, books, lab fees, supplies, travel costs, research costs and similar items. So tuck those receipts away in a safe place until tax season!

If you haven’t already, start saving those receipts when you fill up your gas tank, change your oil, pay your car insurance or make any kind of repair to your vehicle. If you are ever asked to run an errand for your boss or use your car for travel for a work related activity (going to a conference, picking up or dropping off a colleague at the airport) and your employer doesn’t reimburse you for the expense, you are allowed to deduct 56.5 cents per mile you travel. If you are reimbursed some, but not entirely you can deduct the difference. Those that have multiple jobs are not left out either; you can deduct the mileage you travel between the jobs.

You can also deduct travel costs if you volunteer or do charitable work. Uncle Sam will encourage you to help out your fellow man by allowing you to deduct parking and toll fees, bus and taxi fares, and any expenses you incur traveling to and forth from fund-raisers, meetings, and other events.

If your charitable giving comes in the form of cash Uncle Sam will give you a pat on the back and a tax break too! The fall is a great time of year to clean out your closet or garage and donate any unwanted items to charity. As long as you itemize your deductions you can write off the amounts you donate.

As long as we’re in the giving mood we should talk about tax breaks for giving money to family or friends. Normally any money you give to a family member or loved one gets taxed by the government. But you can get around paying federal gift taxes by giving away cash in smaller increments. The IRS allows you to give away $14,000 per year to as many people as you choose. Your spouse can gift money as well, thus bringing up to total amount you can give to each person to $28,000 per year.  Plus if you’re giving this money to someone who is married, you and your spouse can give their spouse $28,000 too, allowing you to contribute up to $56,000 per year to their family tax free.

While we’re on the subject of kids…did yours go to summer camp this year? If not find a weekend day camp you can send them to before the end of the year. Day camp costs are eligible for the child-care tax credit from the IRS. For any child under age 13 the credit (up to $3,000 per year for the care of one child and up to $4,800 for two or more dependents) applies to expenses for caring for a child while the parents are at work.

I wouldn’t normally recommend making investment decisions based upon the tax code, but if you are planning on selling any securities that have made money this year then be sure to sell any that have lost money too. You can take any capital losses (up to $3,000) against those gains and shield the appreciation you’ve earned. Even if you have no investment gains to report this year you can still reduce your tax bill with the capital losses.

My final piece of advice is to seek out the help of a professional before the end of the year. Why? While you may be more knowledgeable about finding tax loopholes going forward you won’t have as easy a time going back in time. Hire a professional to review the last few years of your returns to find any of these tax saving tips you might have missed. Any savings you find will further reduce this year’s upcoming tax bill!

Good luck!

Nancy Patterson

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