Tax Saving Strategies


Generally to save taxes the overarching strategy is to decrease taxable income and/or increase deductions. In this article I discuss a few items that can help along this path to savings. First, one can defer income and/or accelerate deductions. There are two reasons that deferring taxable income makes sense. Most individuals are in a higher tax bracket in their working years than they are during retirement and so deferring income until retirement may result in paying taxes on that income at a lower rate. Secondly, with tax-deferred retirement accounts you can actually invest the money you would have otherwise paid in taxes to increase the amount of your total retirement fund. Deferring income can also work in the short term if you expect to be in a lower tax bracket in the next year or maybe you can take advantage of lower long-term capital gains rates by holding an asset a little longer. Furthermore you can get the same effect of deferring income by accelerating deductions. One example is paying a state estimated tax installment in December instead of at the following January due date. Get best more details about Tax Saving Strategie by visiting on Retirement Planning.

Next, one can defer bonuses. If you are due a year-end bonus, you may be able to defer receipt of these funds until January thereby deferring the payment of taxes (other than the portion withheld) for another year. For the self-employed, defer sending invoices or bills to customers until after the New Year begins. This can defer some of the tax, subject to estimated tax requirements. Note, however, that the amount subject to social security or self-employment tax increases each year.

Next, one could accelerate capital losses and/or defer capital gains. If one of your investments has an accumulated loss, it may be advantageous to sell it prior to year-end. Capital losses are deductible up to the amount of your capital gains plus $3,000. If you are planning to sell an investment which has an accumulated gain, it may be better to wait until after the end of the year to defer payment of the taxes for another year (subject to estimated tax requirements). For most capital assets held more than 12 months (long-term capital gains) the maximum capital gains tax is 15 percent, but is set to expire at the end of 2012.

Finally, one could bunch itemized deductions. Simply put, itemized deductions, like medical or employment related expenses, are only deductible if they exceed a certain thresholds. It could be to your advantage to delay paying in one year and/or prepay them in the next year to bunch the expenses in one year. You stand a better chance of getting the deduction this way.

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