The several tactics listed below help you meet all your tax obligations while keeping as much of your income as possible. If you have any questions about any of these tactics, we’re more than happy to help. We understand each person’s tax and financial situation is unique to them. We’re experts in helping people identify just the right strategy and tactics that meets their needs.
If you work for yourself and pay your taxes in cash, it may be a good idea to hold off on sending out invoices until towards the end of the year. And if your clients pay you net 30 or 60, there’s a good chance you won’t receive payment until the following year. By doing so, you can lower your tax bracket which will lower your taxes.
Another way you can defer income is to make deductible purchases this year that you have been planning on making in the following year. This will lower your taxable income and save you money on taxes you could owe.
Pay Towards Retirement
Making payments towards your retirement plan such as a 401(k) or 403(b) reduces your taxable income. There is a maximum amount you are allowed to invest in a tax year. This max though, includes any money paid by your employer if they have a matching program. So make sure you pay just enough that you get all that your employer matches as well as much as you can pay to bring down your taxable income. If you’re self-employed paying into a retirement plan is also an option
Take Losses and Delay Gains
If you have any capital that needs to be sold, or sold soon, whether or not that sale results in a loss or profit can help you determine when you should sell it. If you’ll be selling your asset at a loss, go ahead and sell it this year in order to write it off your taxable income. If you’ll be making a profit, hold off until next year so you don’t increase your taxable income.
Stay Up-To-Date on Investments
If you have someone else managing your investments, make sure your stay in the know. If a broker sells a stock at a profit to buy another stock, that’s consider taxable income even though the funds went directly into another investment. To avoid this, you can invest in long-term investments and you’ll not pay taxes on the appreciation until you sell the stock. The goal is to minimize turnover.
Move Income By Gift-Giving
The IRS allows taxpayers filing as an individual $14,000, and if filing jointly, $28,000, for each recipient (as of 2014) for each year and not have to pay federal gift tax. There is no limit to how many recipients can receive $14,000. These gifts are taxed at the recipient's tax rate. There are some exceptions and special rules if the recipient is a child under 18. The gift is not considered taxable income if you pay education expenses or medical expenses directly.
Back Treasury Bills (T-Bills)
If your income is high and the state you live in has a high income tax, a treasury bill can potentially defer into the next tax year when the bill or bond matures. Also, the interest awarded to you from treasury bills is not taxable by either state and local authorities.
Invest in Bonds From a Local Government
Income gained by buying a bond from a local or state government (municipal bond), is more than likely exempt from federal taxes. However, municipal bonds generally have lower interest rates. Also, the selling of municipal bonds is subject to either being taxable income or a deduction.
Donate Assets Instead of Cash
Donating assets that have gained in value since you purchased it, will prevent you from having to pay taxes on profit you made on the sell. Also, you’re able to give more to the charity because you’re not having to pay taxes on the capital gains tax—essentially, having to give less money.
Deduct Mileage for Charity
You can deduct $.14 per mile for driving to and from for charity-based work—$.23.5 for medical charities and also for moving as a result of charity work. It’s required by the IRS that you keep accurate and detailed records.
Use a Flexible Spending Account
In most cases, you can’t deduct health and dental expenses however, if the expenses exceed ten percent of your adjusted gross income, you may be able to deduct the excessive expenses. What is deductible is an FSA, or Flexible Spending Account (also known as a Health Savings Account). FSAs can be advantageous for saving money on your taxes. If you know you’re going to spend a certain amount of money in the coming year on medical expenses, putting the money into a Health Savings Account can lower your taxable income. Some plans even allow you to buy items that insurance doesn’t cover, such as over-the-counter medications.
Consider Not Filing Jointly
Filing jointly benefits couples in most cases. However, there are a couple situations where it may be more prudent to file separately. If the 2 spouses income is equal, filing separately allows each of you to benefit from a lower tax bracket. If a spouse has medical expenses, filing separately may lower the taxable income enough so the spouse can deduct expenses that are over 10% of adjusted growth income.
Make The Most of Working for Yourself
As of 2014, you can potentially deduct up to $25,000 dollars in equipment expenses versus previously only being able to deduct its depreciation spread out over several years. You can also deduct all of your health premiums as business expenses as well. And, as long as you’re not incorporated, and if your child is under the age of eighteen, you can hire them without having to pay employment taxes. Also, this decreases your taxable income.
Shift Non-Deductible Debt to a Deductible Loan
Interest on most loans is not deductible—for example, car loans, credit cards and personal loans. It may be more beneficial to you to take out a home equity loan (where the interest is deductible) to pay off these non-deductible loans.
Delay and Combine Deductible Expenses
Certain types of expenses are only deductible when they reach a certain amount. You may not reach that amount in 1 year but you might in 2. If you’re able to, delay those expenses until the next year when they can be combined with the expenses slated for next year thus, bring down your taxable income.