(OT) Top 10 Tax Savings Tips

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Top 10 Tax Savings Tips

 

 

Top Ten Tax Saving Opportunities

By Tony Novak, MBA, MT, Accountant, www. tonynovak. com

 

There are many opportunities to reduce income taxes built into the

today's tax code. Individuals who develop a financial plan

incorporating a long term tax strategy and then conduct periodic tax

planning reviews are most likely to realize savings. This listing

below is meant to highlight the planning possibilities but is not

intended to be a complete discussion of all of the details.

 

1. Tax-free gain on the sale of a home. Up to $500,000 for married

couples and $250,000 for single people. There is no need to reinvest

in another house, but if you do you can rake in another tax-free gain

again in a few years. This is a great way for a single contractor,

for example, to increase after-tax income and net worth.

 

2. Deduct up to 100% of income up to $205,000 for contributions to a

pension plan. This is an extraordinary opportunity for high income

people close to retirement age who are self-employed or work in a

small business.

 

3. Write-off of up to $100,000 of purchases used for business. This

break has been nicknamed the Range Rover write-off. Even if you

bought it with a 100% loan and have not yet made the first payment,

the entire purchase price is immediately tax-deductible. This tax

break was meant to spark economic recovery, and it seems to be

working.

 

4. Receive tax-free reimbursement for out-of-pocket health care

expenses. Use a Medical Savings Account (MSA) if you are

self-employed or a Health Reimbursement Arrangement (HRA) if you are

an employee. Even better tax-saving opportunities are expected soon

using Health Savings Accounts (HSA). This should be an easy way to

save $1000 per year in taxes.

 

5. Tax credit for low income individuals who make retirement plan

contributions. The federal government effectively matches 50% of your

deposit with a tax credit. Of course, the problem is that low income

people do not have money to make retirement plan contributions. But

parents could make a gift of IRA deposits to their children, for

example, to effectively earn an immediate 50% return on their

investment.

 

6. Transfer assets to the next generation. The combination of

estate tax repeal combine with standard estate planning strategies

make it easy to make tax-free transfers of assets to the next

generation.

 

7. Use executive benefits to defer income. Despite recent tightening

of rules for stock options and deferred compensation plans using

corporate-owned life insurance, it is still easy to defer income using

an employee benefit plan.

 

8. Life Insurance. Gains are still tax free when the policy owner

and beneficiary are individuals.

 

9. Non-cash deduction for real estate depreciation. While you

watching your rental properties rise in value, you may write off part

of the purchase price and fix-up costs up to $25,000 per year even if

most of the purchase price was borrowed.

 

10. New asset-based mortgages for affluent individuals make it easy

to finance 100% of the value of a primary home or vacation house. The

interest is deductible and at today's low interest rates, many are

using a " cash out " refinancing to free funds for investments and other

ventures.

 

Before committing to any tax strategy, complete a pro forma tax return

to test the strategies for your unique situation. Pay special

attention to income based phase-outs and the alternate minimum tax.