Minimizing Taxes
Reducing Taxable Income (Before AGI) Retirement 401(k) - Offered through employer & IRA - Individual Retirement Account Contribute before taxed Grows tax free Pay taxes when take $ out Roth IRA: contribute after pay taxes never pay taxes on income earned
Reducing Taxable Income (Before AGI) College Savings (529 Plans run by states) Invest after taxes Money grows without being taxed Withdrawals are tax free Government Investments Municipal Bonds: interest earned is tax free Government Savings bonds: income earned is also exempt from state & local taxes
Reducing Taxable Income Capital Gains on Housing Pay lower tax rate on capital gains than on earned income Avoid taxes on housing capital gains up to certain dollar amount - excluded Also reduce taxable income after AGI Interest Deduction: deduct interest paid on mortgage and real estate taxes
Reducing Taxable Income – Other Approaches Income Shifts Person in high tax bracket can shift income to person in lower tax bracket & pay lower percentage on taxes Shift income to children & will be taxed at lower rate Postpone Income Receive bonuses in next calendar year Good for those in sales profession when may do well one year & not the next year Timing for selling stocks – when pay capital gains
Reducing Taxable Income – Other Approaches Employer Flex Spending Accounts Medical Child Care Use it or lose it Employer Transportation Accounts Public transportation Parking