Hi All...Any good tax strategies out there

[jazz4cash]

Not sure it was mentioned (maybe too obvious for the sophisticated types around here), but use home equity loan/line for any consumer debt you have makes the interest deductible (w/in limits)

You may benefit from tax-advantaged savings accounts (depending on your bracket and local tax situation).* Treasury instruments escape state taxation...

Here's one I love which is not utilized very well (IMHO).* I am a big fan of HSA (Healthcare Savings Accounts).* If your employer offers one, check it out.* Like anything* there may be pitfalls (if you designate too much).* *The constraints for our plan have been greatly relaxed lately (e.g. we have 15 months to use the funds rather than 12).* Do some homework and see if you could AT LEAST put in something to cover monthly healthcare coverage premiums and deductibles.* If you have kids or anyone in the family wears glasses, its easier to estimate how much to defer.* I worked it out one day and we get $1 of healthcare for 65 cents! The savings comes from the HSA account deferral being pre-tax.

[jazz4cash]

Sorry, I mis-spoke, my plan is an FSA (Flexible Spending Account), not an HSA. There are some similarities, but from what I've seen, FSA is better for me.

[samclem]

Unfortunately, if Barnstormer is using Tricare (available to retired military personnel) as his medical insurance, he can't also have an FSA. On the other hand, if you are using your employer's medical plan, they might have an FSA option.

[Barnstormer]

Thanks sam...didn't know I couldn't make use of the HSA/FSA if using Tricare. I was just about to sign up for it. Now I won't.

JLS

[LOL!]

This thread has concentrated mostly on contributing to retirement plans to help reduce taxes, but there are a few other methods to consider as well.

Foremost, don't forget to use tax software. The questions will help prompt you for deductions.

There's not a whole lot outside of contributing to a 401(k) plan to reduce W2 wages, but there's a lot one can do with investment income.

1. Try to get all your investment income in a tax-free (Roth IRA) or tax-deferred (401(k) or traditional IRA) account. All income in a taxable account should at least be qualified dividend income and get you a more favorable tax rate. You don't want to hold a REIT fund in your taxable account, but such a fund would be great in your 401(k) or IRA instead.

2. Try not to realize capital gains. There are no taxes owed on unrealized capital gains. If you must realize gains, try to make sure they are long-term and taxed at a more favorable rate or sell your losers to offset the gains.

3. Sell your losers while they are still short-term (held less than a year), especially in Nov-Dec of each year. You can use up to $3000 in excess losses to offset ordinary income and carry forward to next year losses larger than that.
If need be, you can do some swaps, like sell LOW and buy HD, if you wish to remain fully invested (as you should).

4. Use all the itemized deductions you are allowed. This means give money to charity, pay your property taxes, pay your state income taxes or sales taxes, pay your mortgage interest. Deduct them all. If you don't have enough to itemize, consider bunching deductions into one year. That is, donate to charity in Jan 2007 and in Dec 2007. Pay your property taxes in Jan 2007 and Dec 2007. Then itemize every other year and take the standard deduction in the other years.

5. Got young kids and both parents work? Take the dependent care credit. Summer day camps qualify. Sports camps qualify. I am told your maid service qualifies as well.

6. There are few more esoteric tax savings. If you are blind you get an extra allowance, so you can poke your eyes out. You can deduct medical expenses that exceed 7.5% of your AGI, so to save taxes you can get really, really sick.

7. Pay a lot of money for investment advice. If you pay more than 2% of your AGI, then it's deductible. Of course, why anyone would want to pay so much for advice is beyond, but you wanted ideas for saving on taxes and not on having more money in your pocket.

[jazz4cash]

Quote:

Originally Posted by LOL! Foremost, don't forget to use tax software.* The questions will help prompt you for deductions.

Great point........I have used Turbo-Tax for several years, but I always blew through the "It's Deductible!" feature.* For non-cash charitable donations, I give a few bags of clothes to Goodwill every year and figure they are worth $15 per bag or whatever.......Now I try this "Its Deductible" and based on the contents and condition of the stuff inside, each bag is now worth $75-100!* (Remember Clinton and the underwear deduction?)* It's so much that I am scared to claim it without an itemized receipt which I will get Goodwill to initial from now on and maybe get digital pics too!

[LOL!]

My wife and daughter volunteer at a goodwill warehouse. They get to go through the stuff that gets donated. It turns out that most is in such bad condition that it is thrown away. My wife says that the clothes we actually keep and wear are in worse condition than the stuff they toss. That makes sense when you realize that we are wearing clothes donated to us from friends and family.

Another tax-saving tip is to donate appreciated stock to your charity. Our broker does not charge for this, so that saves a commission and saves the 15% capital gains tax. We do this with our very long term held shares that have the most unrealized capital gains.

[jazz4cash]

Quote:

Originally Posted by LOL! My wife and daughter volunteer at a goodwill warehouse. They get to go through the stuff that gets donated.* It turns out that most is in such bad condition that it is thrown away.* *

..............They don't tell IRS to disallow your deduction, do they?

[SecondCor521]

By the by, there is a new rule passed in the pension act this year that donations to charity, in order to be deductible, must be in "good or better condition". The definition of this is left to the reader, but for clothes, the rule of thumb I read was: "If you wouldn't wear it, you can't deduct it." (If you would wear it, why would you donate it?)

Anyway, just FYI. Contact your local CPA for real assistance.

2Cor521

[Khan]

Quote:

Originally Posted by SecondCor521 By the by, there is a new rule passed in the pension act this year that donations to charity, in order to be deductible, must be in "good or better condition". The definition of this is left to the reader, but for clothes, the rule of thumb I read was: "If you wouldn't wear it, you can't deduct it." (If you would wear it, why would you donate it?)

Because you retired.
And lost weight.

[Nords]

Quote:

Originally Posted by SecondCor521 "If you wouldn't wear it, you can't deduct it."

I've donated many fine oil-changing rags to our local Goodwill! They just have to be sold from the appropriate bin.

Add to the list of "why donate":
- Your kid outgrew it
- Someone changed their fashion mind
- You're living in a tropical climate and don't want to store that winter gear anymore
- And (my favorite reason that our kid's fashionista friends won't shop thrift stores): the deceased owner won't be using it anymore.