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Here are a few tips and strategies to reduce your income taxes for 2006 per Money Magazine.
It’s important to have discussions with your family members or if alone, yourself and have a little checklist of financial goals for the coming year.
Investments – Take your losses
“The Dow may be ending the year in record territory, but most of us still have a few duds sitting in our portfolios (after all, many late – 90′s high fliers are still down 50 percent of more from their peaks). If there’s not a reasonable chance of recovery soon, sell those clunkers now and use the losses to offset capital gains you’ve reaped this year.
If, perish the thought, you have more losses than gains, you can take up to $3,000 of those leftover losses to offset your ordinary income. If your losses are greater than $3,000 (now that’s depressing), you can carry the excess forward to reduce your taxable income in 2007 and later years.”
Flex-plan Moves – Buy some aspirin
Flex-plan is a flexible spending plan, which let you set aside pre-tax dollars for health-care or child-care bills. Now, employees can tap the accounts as late as March 15 of the year following when they signed-up, rather than the usual Dec. 31 date.
“But there’s a catch. According to Jennifer Calhoun of Mercer Human Resource Consulting, many companies have kept the old deadline because of complexities in implementing the new policy. It’s important to check with your HR department to determine your deadline and what expenses are eligible. If you’re on the old clock, race to the drugstore and start stocking up. (Pain relievers: yes! Herbal supplements: not likely.)”
Charity – Be generous
“Make one last round of charitable donations, whether it’s cash, appreciated stock (you can take the current value as a deduction, not your purchase price) or high-quality goods.” If you are wondering who to donate to… a donor-advised fund is a good idea. It is possible to take an immediate deduction this year while waiting until next year or beyond to distribute the money.
“Sound upper crust? Maybe, but you don’t have to be Rockefeller-rich to play; Fidelity just lowered the initial investment on its Charitable Gift Fund from $10,000 to $5,000.”
Retirement – Get IRA smart
If you know of someone who is 70 and 1/2 years old, be sure to remind them to take the required minimum distribution from their IRA by Dec. 31st. (April 1 if they turned 70.5 in 2006). Otherwise, they are taxed 50% on the money they should have pulled out but didn’t. Don’t get me started on this one…I really feel very strongly that these folks should not have to comply with this since it dwindles their nest egg and leaves them feeling as though they may run out of money before they die.
According to Jay Hutchins, a certified financial planner in Lebanon, NH, many folks miss the deadline.
For 2006 and 2007 there is a new option, donate up to $100,000 to a charity from your IRA, by passing the usual taxes on withdrawals and the gift counts toward your required distribution. The gifting deadline is Dec. 31st.
Saving – Set your sights clearly
If you expect to receive a year-end cash bonus (never been that lucky, myself), you should start thinking about where you will put the money before it disappears. Easy come, easy go. Think about a Roth IRA, a 529 college account for the kids or grandkids but do make a plan so that it doesn’t vaporize.
Taxes – Make some adjustments
If you pay your property taxes early, say in December then that gives an added money deduction on your taxes for 2006 instead of waiting for 2007. If you are an employer, you could postpone billing clients until the New Year. These tips will help in reducing your tax bracket which in turn will reduce what you owe. Be sure to check with your accountant on any of these suggestions and more ways to improve your tax bracket.
One thing to note here, is something that a lot of folks overlook and that is to be sure and double check your beneficiaries that you have listed on all of your documents, there may have been a change in your family situation and therefore adjustments should be addressed.
Retirement – Play Catch-up
Because of inflation, the maximum of a 401K contribution has been increased from $15,000 to $15,500. And for those of us that are 50 and older, we can put in a total of $20,500.
How many of us, that actual pay our taxes will be able to take advantage of some of these? I personally like the Retirement Catch-up and those of you that are young whipper snappers need to remember that just like you, we didn’t think that 50 would come as soon as it has…take advantage now and put those funds aside for your impending retirement.
Here are a few tips and strategies to reduce your income taxes for 2006 per Money Magazine.
It’s important to have discussions with your family members or if alone, yourself and have a little checklist of financial goals for the coming year.
Investments – Take your losses
“The Dow may be ending the year in record territory, but most of us still have a few duds sitting in our portfolios (after all, many late – 90′s high fliers are still down 50 percent of more from their peaks). If there’s not a reasonable chance of recovery soon, sell those clunkers now and use the losses to offset capital gains you’ve reaped this year.
If, perish the thought, you have more losses than gains, you can take up to $3,000 of those leftover losses to offset your ordinary income. If your losses are greater than $3,000 (now that’s depressing), you can carry the excess forward to reduce your taxable income in 2007 and later years.”
Flex-plan Moves – Buy some aspirin
Flex-plan is a flexible spending plan, which let you set aside pre-tax dollars for health-care or child-care bills. Now, employees can tap the accounts as late as March 15 of the year following when they signed-up, rather than the usual Dec. 31 date.
“But there’s a catch. According to Jennifer Calhoun of Mercer Human Resource Consulting, many companies have kept the old deadline because of complexities in implementing the new policy. It’s important to check with your HR department to determine your deadline and what expenses are eligible. If you’re on the old clock, race to the drugstore and start stocking up. (Pain relievers: yes! Herbal supplements: not likely.)”
Charity – Be generous
“Make one last round of charitable donations, whether it’s cash, appreciated stock (you can take the current value as a deduction, not your purchase price) or high-quality goods.” If you are wondering who to donate to… a donor-advised fund is a good idea. It is possible to take an immediate deduction this year while waiting until next year or beyond to distribute the money.
“Sound upper crust? Maybe, but you don’t have to be Rockefeller-rich to play; Fidelity just lowered the initial investment on its Charitable Gift Fund from $10,000 to $5,000.”
Retirement – Get IRA smart
If you know of someone who is 70 and 1/2 years old, be sure to remind them to take the required minimum distribution from their IRA by Dec. 31st. (April 1 if they turned 70.5 in 2006). Otherwise, they are taxed 50% on the money they should have pulled out but didn’t. Don’t get me started on this one…I really feel very strongly that these folks should not have to comply with this since it dwindles their nest egg and leaves them feeling as though they may run out of money before they die.
According to Jay Hutchins, a certified financial planner in Lebanon, NH, many folks miss the deadline.
For 2006 and 2007 there is a new option, donate up to $100,000 to a charity from your IRA, by passing the usual taxes on withdrawals and the gift counts toward your required distribution. The gifting deadline is Dec. 31st.
Saving – Set your sights clearly
If you expect to receive a year-end cash bonus (never been that lucky, myself), you should start thinking about where you will put the money before it disappears. Easy come, easy go. Think about a Roth IRA, a 529 college account for the kids or grandkids but do make a plan so that it doesn’t vaporize.
Taxes – Make some adjustments
If you pay your property taxes early, say in December then that gives an added money deduction on your taxes for 2006 instead of waiting for 2007. If you are an employer, you could postpone billing clients until the New Year. These tips will help in reducing your tax bracket which in turn will reduce what you owe. Be sure to check with your accountant on any of these suggestions and more ways to improve your tax bracket.
One thing to note here, is something that a lot of folks overlook and that is to be sure and double check your beneficiaries that you have listed on all of your documents, there may have been a change in your family situation and therefore adjustments should be addressed.
Retirement – Play Catch-up
Because of inflation, the maximum of a 401K contribution has been increased from $15,000 to $15,500. And for those of us that are 50 and older, we can put in a total of $20,500.
How many of us, that actual pay our taxes will be able to take advantage of some of these? I personally like the Retirement Catch-up and those of you that are young whipper snappers need to remember that just like you, we didn’t think that 50 would come as soon as it has…take advantage now and put those funds aside for your impending retirement.
