One of the largest expenses you have is the income tax you pay. If you continually pay more than necessary, you diminish your ability to build your wealth to accomplish important financial goals.
The only effective way to cut your taxes is to do regular tax planning. Always consider the tax consequences of any transaction before the fact; seek professional assistance any time dollar amounts are significant.
Following are a few tax tips for individuals. For assistance in identifying the tax-cutting strategies best suited to your particular situation, contact my office. I'm here to help you minimize your taxes – this year and every year.
- Don't lose your mortgage points deduction. When you refinance a mortgage, you're required to deduct the points over the life of the loan. But if you refinance again or sell the home, you can write off the remaining undeducted amount in that year.
- Check your exposure to the alternative minimum tax (AMT) as part of your tax planning. Because the AMT exemption amount is not indexed for inflation, this tax is hitting more middle-income taxpayers. You may need to consider moves to lessen the AMT's impact on you.
- Maximize dependency deductions. If you are helping to support an elderly parent, your college-age child, or others, know the requirements that will give you a dependency exemption. Don't let poor planning or paying for the wrong expenses cost you a tax-cutting dependency exemption.
- Don't aggravate your tax bill with penalty charges. If you are required to make estimated tax payments, be certain that you are paying the minimum required. In most cases, that's 100% of your prior year's tax liability.
- Give appreciated property to charity rather than cash. You'll generally get a charitable deduction for the property's market value without having to pay capital gains tax on the appreciation. Get details before you give, however, because other restrictions could apply.
- If you plan to sell a piece of investment real estate and replace it with other investment property, you should look into a tax-deferred exchange.
- Take a tax deduction for bad debts. If you lent money and it's beginning to look as though the loan is uncollectible, take steps to provide evidence of your attempts to collect. These steps will help substantiate a bad debt deduction on your tax return.
- Consider taxes in any major financial transaction. Before making any major financial decision, get the facts on the tax consequences involved. By structuring a transaction a certain way, you can often save significant tax dollars.