TECHNIQUES TO REDUCE TAXES ON YOUR INCOME

     The most exciting words you can say to the IRS is, "My accountant takes care of my taxes"! The IRS loves people who file a tax short-form and goes to your local tax preparer or other tax service after January of each year. Why? Because they know you are not doing tax planning. If you wish to reduce income taxes and increase your paycheck every year for the rest of your life, you must begin doing tax planning before you do your tax preparation. We hope you are wise and listen to what we just said! You must do tax planning before the end of the year - every year to reduce income taxes.

     The biggest obstacle for a wage-earning employee is that most of the tax deductions have been removed by congress. Employees must get more creative. The following list of tax techniques may be of help to increase your next paycheck.

• Your W-4 exemptions: If you can reduce your taxes you will be able to increase your W-4 exemptions. This exemption not only represents dependents, they can also be added if you do tax planning to reduce taxes. By reducing taxes you can increase your W-4 exemptions and increase your net take home pay.

• Eliminate 1099 income: Too many people stack their passive income from interest, dividends and capital gains on top of their wages. This is a waste of money. Interest from banks can mostly be minimized. Mutual funds not in a 401(k), IRA, pension or other tax shelter can also create a 1099 tax problem. This problem may be minimized. Take advantage of our ICA free volunteer advisor referral service to learn more about how to eliminate most 1099 income. 1099's simply add to your tax problem.

• Home based businesses: Many people convert a hobby into a business in order to take advantage of numerous businessdeductions. There are a lot of rip-off business promotions and you will want to seek advice before jumping into a home business. You also should not get involved in a business that will affect your current employment. You should do something that is fun and easy. It is not unusual to reduce your taxes and increase your income from $150 to $600 monthly with a home business, depending on your income level.

     With a home business you can deduct part of your residence, vehicle, deduct over $4,250 per working children who helps in your business (no payroll for your own children ages 7 - 18), travel as a business expense and increase your tax deductions dramatically. Again, we remind you that you should not develop a labor intensive business that will interfere with your job. One program we often suggest is to work with a tax program that teaches people how to reduce taxes. You do not need to know anything about taxes. You simply refer people to a tax program to learn how they too can reduce income taxes and a national team of tax experts does all the work. Ask for free information by contacting the ICA.

• Increase your deductions: If you have a lot of medical expenses that are non-deductible such as health insurance premiums, deductibles, co-pays, dental, eye care, other substantial health care costs or you have a child with major health problems or someone in the family that has a terminal illness, you may want to learn how to set up an IRS Section 105 health plan that allows you to deduct 100 percent of all health care costs, dental, eye care or drugs prescribed by a doctor. This plan literally allows you to deduct all these costs. Contact the ICA for a volunteer advisor if you want to learn more about this money saving tax deduction. Only married couples will qualify for this benefit.

• Appreciated assets and capital gains tax: New tax laws have reduced the capital gains tax on appreciated assets. However, if you are in a 28% tax bracket you will still pay a 20% tax unless you can avoid or defer this tax. Stock options, corporate stock, real estate or investments may create a tax when sold. The key to minimizing the capital gains tax is to plan ahead - before you sell the asset.

     You have several choices to consider. Defer the tax when possible by spreading the sale. Consider a 1031 tax-free exchange for other real estate. Shift the asset to a family limited partnership and split the income with your lower tax bracket children or grandchildren. Consider a business trust to eliminate or defer the tax. Consider a business trust and family foundation to completely eliminate the tax. If you have charitable interests, consider a Charitable Remainder Trust (CRT) and take a retirement income for life.

     Before selling an appreciated asset, consider all your alternatives. Avoid adding capital gains income to earned income if you have other alternatives.

• Estate taxes: Anyone who pays estate taxes has simply failed to plan. Wealthy people who have grown their estate far beyond the federal estate tax exemption can totally eliminate this tax with planning. Single, widowed or divorced individuals may not have reviewed their estate tax problem and could donate thousands of dollars to the government at death. Current estate exemption limits are increasing. The problem with these exemption increases is that your estate may also be increasing, thus making the increases less effective. When you exceed the estate exemptions your estate tax can range from 37% to well over 55%. Don't fail to carefully evaluate this tax problem. It can mean disaster for the family or heirs. It is especially important for executives and financially successful people because you may have failed to complete an accurate assessment of the current market value of the estate. When the IRS looks at your estate tax form 706 after your death, it will not matter what you "thought" your estate value was. They will place a realistic current market value on your estate when the estate is audited. To "check up" on your real estate tax problem, you may get help through the ICA by asking for a free computerized estate tax profile. A volunteer financial advisor will go over your estate tax issues with you. There is no obligation or cost.

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