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Tax Free Savings Accounts 2006 Article
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Simple Ways to Reduce Taxes
from:We’re all looking for ways to reduce taxes. And, while we often feel discouraged and believe that we’re destined to pay loads of money in taxes forever, there really are some ways to reduce taxes this year and every year.
The first step to reducing taxes is to reduce your adjusted gross income. Your adjusted gross income is your income after things that are taken out as pre tax items. Some of the biggest adjustments to your income come from things like contributions to your 401k and your health and dependent care expenses. It’s important to be in these programs if you want to reduce taxes. Contributing to a 401k can reduce your taxable income significantly, and it’s something you need to be doing anyway, since it saves for your retirement income.
You can also set aside money to pay for child care and healthcare expenses not covered by your insurance on a pre-tax basis. This helps reduce your income as well as helping you set aside money for these expenses. If you choose not to set aside money through a pre-tax flexible spending account, you can deduct these expenses from your taxes at the end of the year.
The second way to reduce taxes is to maximize your deductions. One of the best tax deductions you’ll get is mortgage interest. So, if you don’t own a home, buying one can actually help you reduce taxes each and every year. Even interest paid on a second mortgage or home equity loan is deductible, so it’s wiser from a tax perspective to take out a home equity loan and pay off your credit cards and car loans, since the credit card interest or car loan interest you pay is not tax deductible.
Other important tax deductions that many people forget include interest paid on student loans and any tuition that is paid to a college or university. Tuition paid to private elementary, middle and high schools, however is not tax deductible.
Another way to reduce taxes is to make charitable contributions. And, your contributions don’t have to be money. You can deduct the value of items donated to charity, such as old clothing and household goods. So, the next time you clean out your closets, don’t throw the items away, but rather donate them to a charity. You’ll get a receipt for your donation where you can estimate the value of the items donated. Save this receipt and use the value as a tax deduction at the end of the year.
Reducing taxes is possible for most Americans if we simply pay attention to the options available to us. It pays to read the tax code, too, since there are changes each year. Another option is to use a professional tax preparer for your taxes, since they are trained to know all the available deductions.
Tax Free Savings Accounts 2006 News
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