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Published byBenedict Sharp Modified over 9 years ago
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Minimizing Taxes
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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
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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
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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
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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
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Reducing Taxable Income – Other Approaches Employer Flex Spending Accounts Medical Child Care Use it or lose it Employer Transportation Accounts Public transportation Parking
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