Minimizing Taxes

Reducing Taxable Income (Before AGI)  Retirement 401(k) - Offered through employer & IRA - Individual Retirement Account  Contribute before taxed  Grows tax free  Pay taxes when take $ out Roth IRA:  contribute after pay taxes  never pay taxes on income earned

Reducing Taxable Income (Before AGI)  College Savings (529 Plans run by states) Invest after taxes Money grows without being taxed Withdrawals are tax free  Government Investments Municipal Bonds: interest earned is tax free Government Savings bonds: income earned is also exempt from state & local taxes

Reducing Taxable Income  Capital Gains on Housing Pay lower tax rate on capital gains than on earned income Avoid taxes on housing capital gains up to certain dollar amount - excluded Also reduce taxable income after AGI  Interest Deduction: deduct interest paid on mortgage and real estate taxes

Reducing Taxable Income – Other Approaches  Income Shifts Person in high tax bracket can shift income to person in lower tax bracket & pay lower percentage on taxes Shift income to children & will be taxed at lower rate  Postpone Income Receive bonuses in next calendar year Good for those in sales profession when may do well one year & not the next year Timing for selling stocks – when pay capital gains

Reducing Taxable Income – Other Approaches  Employer Flex Spending Accounts Medical Child Care Use it or lose it  Employer Transportation Accounts Public transportation Parking