Most people are under a strange notion that a good accountant will reduce your income tax. That is largely untrue. By the time you come dump your box of receipts on his desk April 1, the prior year has been closed for 90 days and the ship to reduce your income tax has sailed long ago. All your accountant does is place your numbers in the correct little boxes on the tax form.
To reduce your income tax, you need to be thinking about these aspects all year and act before December 31 of the year.
Keep accurate financial records to reduce income tax
Don't do what a lot of people do and keep thousands of receipts in the bottom drawer. It might be easier in the beginning, but when you eventually have to deal with them you will kick yourself. You won't be able to sleep for weeks and stress will become a big part of your life. If you want to make things a hundred times easier you should hire a quality bookkeeper who will look after everything for you. Alternatively, just set up a few folders and dump receipts in those folders rather than in the junk drawer.
To Reduce Your Income Tax Claim all Deductions Available
You can reduce income tax by taking advantage of everything possible and that means you must know what is deductible. If you have the money it would be very beneficial to speak with a great accountant at the beginning of the year and tell them about your family, your financial situation, any major transactions you plan for the year and have him look at the prior year's tax return. In an hour (cost likely less than $200), you can likely avail yourself of deductions that may be worth ten times as much. But you need to be the one who takes action to reduce your income tax. Your accountant will not likely call you.
Make sure you know the dates (put them in your calendar) as to when your tax return is due and when you must make estimated payments (if you are self employed or have significant income other than your job). Late filing and late payments bring unnecessary penalties.
Give to charity
I'm sure you must have lots of things lying around that you don't need any more and there will be plenty of people willing to take them off your hands. You can donate your old things to charity and you will be able to deduct it from your taxes. Not only are you saving valuable money, but you are also helping people in need so everyone wins. To reduce your income tax by donating financial items, give appreciated stock and get two benefits: avoid the capital gains tax and get a tax deduction.
Plan for retirement
If you make extra payments to your tax-deductible retirement fund, you can use some of the money you would have paid in tax. It is insane when people do not maximize their contribution to their 401k when the employer is matching your contribution. Do you make this mistake?
It won't take long
We are talking about a few hours, less than a day each year to put the pieces in place to reduce your income taxes. if you invest 5 hours and save $2,000, that's $400 an hour--not a bad wage.
- License: Royalty Free or iStock source: http://www.andertoons.com/tax/cartoon/4716/im-taxes/
Today's post is authored by Jake Tyler. He is an independant financial consultant and provides tax services in New York. He is a passionate blogger and often suggests useful financial tips on his blog.
You Pay More Taxes Than NecessaryAnd we guarantee your CPA has never told you The problem with paying taxes is that most people overpay. So if you are concerned about having enough in retirement, you must stop overpaying taxes. I know you think your CPA takes care of this for you. WRONG. I AM a CPA (retired) and I can tell you that 90% of CPAs do nothing more than enter your information into the little boxes on the tax return but NEVER tell you how to pay less next year. Why? Many of them simply do not know what we can show you. In ten minutes.
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