Best QuickBooks Consulting & Training in Piscataway, NJ

Five Ways to Minimize your Tax LiabilitynnIf you want to save money on your tax bill next year, consider using one or more of these tax-saving strategies that reduce your income, lower your tax bracket, and minimize your tax bill. nn1. Max out your 401(k) or Contribute to an IRAnnYou've heard it before, but it's worth repeating because it's one of the easiest and most cost-effective ways of saving money for your retirement. Many employers offer plans where you can elect to defer a portion of your salary and contribute it to a tax-deferred retirement account. For most companies, these are referred to as 401(k) plans. For many other employers, such as universities, a similar plan called a 403(b) is available. Check with your employer about the availability of such a plan and contribute as much as possible to defer income and accumulate retirement assets.nIf you have income from wages or self-employment income, you can build tax-sheltered investments by contributing to a traditional (pre-tax contributions) or a Roth IRA (after-tax contributions). You may also be able to contribute to a spousal IRA even when your spouse has little or no earned income. nn2. Take Advantage of Employer Benefit Plans nnMedical and dental expenses are generally only deductibles to the extent they exceed 7.5 percent of your adjusted gross income (AGI) in 2018 (rising to 10% in 2019). For many individuals, particularly those with high income, this could eliminate the possibility for a deduction. nHowever, you can effectively get a deduction for these items if your employer offers a Flexible Spending Account or FSA (sometimes called a cafeteria plan). These plans permit you to redirect a portion of your salary to pay these types of expenses with pre-tax dollars. Another such arrangement is a Health Savings Account (HSA). Ask your employer if they provide either of these plans.nn3. Bunch your Itemized DeductionsnnCertain itemized deductions, such as medical or employment-related expenses, are only deductible if they exceed a certain amount. It may be advantageous to delay payments in one year and prepay them in the next year to bunch the expenses in one year. This way you stand a better chance of getting a deduction.n4. Use the Gift-Tax Exclusion to Shift IncomenIn 2018, you can give away $15,000 ($30,000 if joined by a spouse) per donee, per year without paying federal gift tax. And, you can give $15,000 to as many donees as you like. The income on these transfers will then be taxed at the donee's tax rate, which is in many cases lower.nNote: Special rules apply to children under age 18. Also, if you directly pay the medical or educational expenses of the donee, such gifts will not be subject to gift tax. nFor gift tax purposes, contributions to Qualified Tuition Programs (Section 529) are treated as completed gifts even though the account owner has the right to withdraw them. As such, they qualify for the up-to-$15,000 annual gift tax exclusion in 2018. One contributing more than $15,000 may elect to treat the gift as made in equal installments over the year of the gift and the following four years so that up to $60,000 can be given tax-free in the first year.nn5. Consider Tax-Exempt Municipal BondsnnInterest on state or local municipal bonds is generally exempt from federal income tax and from tax by the issuing state or locality. For that reason, interest paid on such bonds is somewhat less than that paid on commercial bonds of comparable quality. However, for individuals in higher brackets, the interest from municipal bonds will often be greater than from higher paying commercial bonds after reduction for taxes. Gain on sale of municipal bonds is taxable, and loss is deductible. Tax-exempt interest is sometimes an element in the computation of other tax items. Interest on loans to buy or carry tax-exempts is non-deductible.nnDocumentation - Keep Good RecordsnUnfortunately, many taxpayers forgo worthwhile tax credits and deductions because they have neglected to keep proper receipts or records. Keeping adequate records is required by the IRS for employee business expenses, deductible travel and entertainment expenses, and charitable gifts and travel, and more. nnBut don't do it just because the IRS says so. Neglecting to track these deductions can lead to overlooking them as well. You also need to maintain records regarding your income. If you receive a large tax-free amount, such as a gift or inheritance, make certain to document the item so that the IRS does not later claim that you had unreported income.nIf you're ready to save money on your taxes this year but aren't sure which tax-saving strategies apply to your financial situation, don't hesitate to call.