Making Tax-Wise Financial Decisions

Posted By: The Cheapest Skate in Taxes on 08/04/2007 at 16:46:52

Thinking about how much of your income goes towards taxes. If you're in the higher tax brackets, you may be handing nearly half of every dollar you earn to Uncle Sam, but there are things you can do to keep more of your hard-earned money. Good tax planning is a year-round activity, and investing the time will impact your taxes at the end of the year. It's a good idea to get in the habit of considering the tax consequences whenever you make any financial decision.

One of the easiest ways to reduce your taxes is to take advantage of tax-free or tax-deferred employer-provided fringe benefits, such as:

.Benefits provided under cafeteria plans and flexible-spending accounts that allow you to take benefits in lieu of cash (tax-free)

.Medical and accident insurance paid by your employer (tax-free)

.Educational assistance programs (tax-free)

.Retirement plans like 401(k) and 403(b) that allow you to make contributions (tax-deferred)

.Incentive stock options (tax-deferred)

.Employee stock purchase plans (tax-deferred)

.Group term health insurance up to $50,000 (tax-free)

.Free parking up to $175/m (tax-free)

.Employer-provided meals and lodging under certain circumstances (tax-free)

Another way to reduce taxes is to be sure you take all the credits and other tax-reductions you're entitled to, such as the child credit (in addition to claiming the child as your dependent), filing as head of household, or taking the earned income tax credit if you qualify.

Owning a home is another one of the best tax shelters available. Not only do you get to deduct your mortgage interest from your taxable income, you also get to keep up to $250,000 ($500,000 for married couples) of profit when you sell, without paying any taxes on the gain.


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