Tax Saving Strategies For Individuals

Many taxpayers neglect to keep receipts or records, therefore miss out on tax deductions. Always be sure to keep records when it comes to your income. For example, a large tax-free amount received as a gift, needs to have proper documentation so the IRS will not accuse you of unreported income at a later date.

As you read through the items below, be aware these are intended for general information and should always be tailored to your specific situation. We are happy to discuss your situation and see how we can maximize your savings. Call us today to schedule a free consultation*.

Max Out Your 401(k) or Similar Employer Plan

Most employers offer a 401(k) or similar plan that allows you to defer a portion of your salary and contribute it to a tax-deferred retirement account. Contribute as much as possible to defer income and accumulate retirement assets.

Avoid or Defer Income Recognition

Deferring income until retirement may result in paying a lower rate on taxes for that income, due to the fact that you will be in a lower tax bracket during your retirement years. Deferral works in your favor as well, when you expect to be in a lower tax bracket the following year. You could also opt to hold an asset a little longer and take advantage of long-term capital gains rates.

You may also consider paying a state estimated tax installment in December, versus paying at the January due date.

Contribute to an IRA

If you are self-employed or receive wages from your employer, contributing to a traditional or Roth IRA. IRAs defer the taxation of IRA investment income. Did you know you can also contribute to a spousal IRA?

When contributing to an IRA, we recommend funding the IRA as early as possible in the year and to pay the IRA trustee our of separate funds, not the amount in the IRA. This will ensure you get the most tax-deferred earnings possible from the money you have invested.

Defer Bonuses or Other Earned Income

You can defer the payment of taxes on a year-end bonus or other income by deferring receipt until January. This defers payment of taxes for an additional year.

Accelerate Capital Losses and Defer Capital Gains

If your portfolio has seen an accumulated loss you should consider selling those investments prior to year-end. Capital losses are deductible up to the amount of your capital gains plus $3,000.

If you have accumulated gain on investments, wait to sell until after the end of the year, to defer payment of taxes for another year. Many capital assets held for 12 months or longer have a maximum capital gains tax of 20 percent.

Always consider the investment potential of your assets. You may find that you must sell to maximize economic gain or that you need to hold the asset into the New Year in an effort to recoup economic loss.

Give Appreciated Assets to Charity

Appreciated long-term capital assets can be donated to charity instead of a cash gift. This prevents you from having to pay capital gains tax on the sale, which may result in a significant saving on capital gains tax. You can also obtain a tax deduction for the fair market value of the property.

Keep Track of Mileage Driven for Business, Medical or Charitable Purposes

You may be eligible to deduct miles driven in your car for business, medical, or charitable purposes. In 2021, you can deduct 56 cents per mile for business, 16 cents for medical and moving purposes (members of the armed forces only for tax years 2018-2025), and 14 cents for service for charitable organizations.

This is where record keeping is a must. To substantiate the deduction, you need to keep detailed daily records of the mileage driven for these purposes.

Take Advantage of Your Employer’s Benefit Plans

Many employers offer a Flexible Spending Account. These plans allow you to redirect a portion of your salary, tax-free, to an account that is used to pay for certain medical or daycare expenses.

Consider a Separate Filing Status

Married couples may benefit from filing separately instead of jointly. We recommend doing this when one spouse has large medical expenses, miscellaneous itemized deductions or casualty losses, AND the spouses’ income are about equal.

Self-Employed Individuals Can Take Advantage of Special Deductions

Rather than writing off a business expense over many years, in 2021 you are eligible to expense up to $1,050,000 for qualified equipment purchases in your business. Self-employed individuals can also deduct 100 percent of their health insurance premiums as a business expense.

Take Out a Home Equity Loan

Prior to 2018, interest on a home equity loan can be deductible. This is not the case for tax years 2018-2025 where interest on home equity loans is not deductible.

How Can We Help?

Contact Us
Contact Us