Tax Time

Day 18: Tax Time

April 18, 2011 is an important day for the US Treasury.  Today is when everyone  figures out if they have contributed enough to Uncle Sam. Although paying taxes is what helps support our government, it doesn’t mean you shouldn’t try to minimize your tax bill.  There are a few simple things you can do to help reduce our tax bill.

Are you fully using the benefits that a tax-advantage investment is offering?  Contributing to a traditional IRA is one way to reduce the taxes owed because it is contributed to an IRA before it is taxed.  This helps to reduce the income that is taxable.  If your employer has a retirement plan, such as a 401(K), increasing the amount you contribute will also help to reduce your income, which ultimately reduces your taxes owed.

Another way to reduce your tax bill is to purchase energy efficient home appliances.  The government provides a  residential energy credits  for individuals who make energy efficient improvements on their home.  Credits are better than deductions because they reduce your tax owed dollar for dollar.  If you’re looking into replacing your windows, doors, central air conditioner, and other things you may want to consider energy efficient products.

A health savings or flexible spending accounts are ways to minimize your tax bill.  A HSA is used to pay out of pocket medical expenses.  Contributions to a HSA are either tax deductible or done on a pre-tax basis.  To receive a deduction for medical expenses on your taxes you have to exceed a high threshold in dollars before you can start reaping the benefits (7.5% of your AGI).  The HSA and FSA are ways to receive a benefit for even the small medical expenses, such as doctor co-pays, eyeglasses, and prescription drugs. 

Lastly, everyone typically gives to charity, but if you don’t you should. Sharing  is an important component of healthy finances.  Keeping track of what is donated and how much things cost will help reduce your tax burden.  Donations to NAMI, American Red Cross and other qualified non-for-profit organizations are tax deductible. 

As mentioned earlier in the article, paying taxes is a very important duty we as Americans must do.  Thinking more strategic and implementing very simple tax planning strategies can help you reasonably reduce your tax bill. 

Spend Consciously,

Shareeke The Conscious Spender

 

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