How to cut your income taxes next year

 

Taxes are a big part of your budget

By now you're almost done. You've figured out your total tax liability, and requested a refund or written a check for the amount you owe. But I'd suggest you take a pause here.

Look at the total tax you paid this year, and then look at your total income for the year. If you're an average American, you gave about 12 percent of your income to the federal government in the form of income taxes. And 28 cents of every additional dollar you earn goes to Uncle Sam, not counting Social Security taxes.

You probably pay thousands of dollars in taxes and it represents one of one of your largest expenses. Although most of your other big expenses like your mortgage payments are fixed, your income tax liability is something that can be reduced with a little thought.

How to cut taxes for next year

Here are a few ways to cut your total tax liability for next year.

First, if you're not using retirement accounts like IRAs or 401(k)s, start using them today. They're great ways to cut your taxes now, and to help you save for your retirement.

Consider starting a small Schedule C business or buying some rental property. These endeavors can produce deductible business expenses while at the same time helping you create a more secure future.

If you had to pay a lot of capital gains taxes, avoid these taxes in the future by not trading securities so much. If you want to trade securities, do the trading inside your tax-deferred retirement accounts.

Also, if you own a home and have lots of credit card debt or an automobile loan, reduce the cost of this debt by replacing this non-deductible debt with a deductible home equity loan. This puts your home in more danger, but home equity debt usually has a lower interest rate and the interest is normally tax deductible.

Finally, keep track of all your potentially deductible expenses, especially unreimbursed job expenses. These can add up if you itemize your deductions.

And check in often at the luhman.org web site. As tax law changes, we'll try to keep you up to date.

Why save on taxes

Finally, although I talk a lot about reducing your taxes, remember that taxes are a necessary part of our society, and they provide for a lot of good, useful things.

So if you've managed to use this tape to reduce your tax burden, consider sharing some of the savings with charities that you believe in. There are ways to do good other than sending money to Washington and hoping they spend your money wisely.

So thanks again for listening, and good luck with your taxes. And remember to listen to this and our other tapes again and again. Each listening will clarify and reinforce the information for you.

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