How To Reduce Your Tax Liability

15 November 2010 One Comment Print This Post Email This Post

Many people fail to plan when it comes to taxes.  You can save significant amounts of money regarding your tax liability if you are willing to be plan.  Below you will find some proactive tax planning strategies:

1.  Learn the range for the marginal tax brackets.  You can find these at http://taxes.about.com/od/preparingyourtaxes/a/tax-rates_2.htm.  With some planning, you may be able to reduce your taxable income so as to be taxed at a lower marginal rate.

2.  Evaluate your investments and make sure you not only have them allocated appropriately, but also determine if they are in the most tax-efficient vehicle.  See previous blog entry regarding asset location at http://stepbystepfinancialplanning.com/blog/2009/06/14/asset-location-an-often-overlooked-aspect-of-investing/

3.  Fund your available retirement plans as much as possible.  Don’t just contribute what the company gives you as a match!

4.  Document the non-cash charitable contributions you make to organizations, such as Goodwill and Salvation Army.  You give more than you realize.

5.  Keep track of miles for business, unreimbursed employee expenses, charity and medical.

6.  Use your investment losses in your non-retirement accounts to offset gains.

7.  Be mindful of potential state tax deductions for contributions to 529 college savings plans.

8.  Consider Donor Advised Funds for charitable purposes.

There are many other potential tax planning strategies so I encourage you to speak to your tax professional for ideas and suggestions.  Tax preparation is nothing other than “documenting history.”  Tax planning is where the real money is saved.  I encourage you to take some time before the end of the year to see how you can proactively plan to reduce your 2010 tax liability.

  • Teresa

    my son (27) and his girl friend(26) moved in with me because of lack of jobs due to the economy. I have provided for 100% of their suport since August of 2008 I realize its late to claim them for prior years without resubmitting an updated tax return. But first, can even claim them? I looked at the eligibility requirements last year and I thought the answer was no, but a friend recently said other wise