December 14, 2007
Looking for the Best Tax Savings
Tax savings are important to all of us. It pays to know and understand IRS rules so that you can take full advantage of all the tax savings programs for which you qualify. Following are a few specific tax savings programs that you should understand, because if you qualify for them, they can save you a bundle.
* Retirement Savings - Retirement accounts are a great way to save money for your retirement years, but theyre also a great way to have tax savings right now. 401k accounts sponsored by your employer as well as traditional IRAs are tax free. There are limits to how much you can deposit into these accounts each year and receive tax savings, but its important to put as much as you can into these accounts both for the tax savings you get today as well as preparing for your future.
* Flexible Spending Accounts - Most employers offer flexible spending accounts for their employees. With these accounts, you can set aside money from your pre-tax income for expenses like child care and health care expenses not covered by your insurance, including over the counter medications and co-pays. By setting aside this money on a pre-tax basis, youll lower your taxable income, providing tax savings.
* Reinvesting Real Estate Profits - Most people know that you can be exempt from capital gains taxes on your primary home, up to a certain dollar amount. But, many people dont realize that you can escape paying capital gains taxes on other real estate when you sell it and make a profit. But, the IRS does not hold you liable for capital gains taxes on real estate profits if the profits get reinvested into real estate. So, if you sell a vacation home or a piece of rental property, simply reinvesting and profits you made back into a real estate transaction will help you avoid paying capital gains taxes, which can be as much as 30%.
* College Funds - Another great way to save on your tax bill is to invest money in your kids college funds. Now, the money youll be investing will be after tax money, but any interest the money in the college fund earns will be tax free. Even when your child withdraws the money, no taxes will have to be paid on the earnings, as long as the withdrawals are used to pay for approved college expenses, such as tuition, room, board, and books.
As you can see, there are lots of simple ways to save money on your taxes. You may not be able to take advantage of all of these programs, but be certain to use the ones you can, so that you can realize the maximum amount of tax savings.
Written by Doug Samuelson