TAX SAVING TIPS

Tax

The best approach to tax planning is to start early in the year. Some strategies can help you lower your taxes, sometimes by thousands of dollars. Some help you save time and money when preparing your tax return. Other strategies help you avoid costly penalties and interest on both federal and state taxes.

Contribute to retirement fund (401k): I always suggest people to contribute more towards the retirement fund as it’s a savings which will help you after your retirement, when you don’t have any income. If you're eligible, you can still contribute to an individual retirement account. Making a deductible contribution will help you lower your tax bill this year. Plus, your contributions will compound tax-deferred. It’s hard to find a better deal.

Child and education: You are allowed to deduct up to $1000 for each child under age 17. Child tax credits and education credits have been more generous in recent years.  That means more tax-savings opportunities for parents of children; especially those with dependents attending a college or university.You can deduct up to $4,000 for higher education tuition and qualifying fees.  This deduction is phased out starting at $80,000 for single filers and $160,000 for joint filers. If you're a working parent, and paying for the care of a dependent under the age of 13, then you may be eligible for the dependent care tax credit for all qualifying expenses.  In 2010, the maximum credit you can take is between 20 to 35% of qualifying expenses, with a deduction cap of $3,000 for one child and $6,000 for two children.

Business expenses (or employee expenses): Even if you don’t own a business, you may be are still eligible to deduct business (or profession) related expenses if you incure some expense for your job and your employer didn’t reimbursed your expense. For example, travelling expenses related to your job.

Home mortgage loan: The interest you have paid during the year on a home mortgage or a second home mortgage may be tax-deductible. Since home-loan payments are often a large expense, this deduction can amount to hundreds or thousands of dollars in savings. Only one second home or vacation home can qualify for a mortgage interest deduction. Stat property and real estate taxes are also deductible from your federal tax.

 

Defer income: If you have any income from any investments or incurred any expense related to it, you can claim them as a deduction.