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Step 3 - Minimize Your Taxes

January 21st, 2008 at 02:46 pm

Use every legal method to reduce taxes. If you are married and your spouse has no earned income, you may be able to fund a "spousal IRA." With a spousal IRA, you may deduct an additional $5,000 (or $6,000 if your spouse is over age 50) from your income taxes in the 2008 tax year.

If you have children in college, take advantage of the federal government's HOPE Scholarship or Lifetime Learning credit programs. Both of these programs provide tax credits which can reduce the income taxes that you owe on a dollar-for-dollar basis.

The Hope Scholarships can reduce your tax bill by up to $1,800 in 2008, while the Lifetime Learning tax credits can reduce your tax bill by up to $2,000. If you are eligible for both, you must choose the one that provides the greater tax savings.

Using appreciated long term stock for charitable giving can also reduce your taxes. You pay no taxes on the stock's appreciation and receive a charitable deduction of the stock's full market value. The easiest way to give appreciated stock is through a donor-advised charitable giving fund. This type of fund is free and easy to set up, yet it provides you a giving vehicle similar to a charitable foundation.

Fully funding your Health Savings Account gives you the same tax savings benefit as funding an IRA. Your taxes are reduced even if you dont itemize your deductions. You can even deduct your HSA contributions when you have no earned income.

In low income years, consider converting some of your IRA assets to a Roth IRA. If you can do so by paying no more than 15% in taxes on the conversion, you will likely save taxes upon your withdrawal of the funds.

If you are in the 25% tax bracket or higher, you will likely receive greater after tax income from tax exempt municipal bonds issued in your home state, than from high quality taxable bonds. Do your calculations before you buy to determine which bonds provide the higher after tax return.

Every dollar saved by reducing your taxes helps build your financial abundance.

1 Responses to “Step 3 - Minimize Your Taxes”

  1. Amber Says:

    Great post, thanks for the info

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