You are on page 1of 6

9 Little Known Strategies That Could Legally Save You Thousands In Taxes How to Lower Your Income Taxes

The rich are there to make all the money and pay none of the taxes. The middle c lasses are there to do all the work and pay all the taxes. The poor are there to scare the daylights out of the middle class so they’ll keep working and paying th e taxes. George Carlin Income taxes are the single largest expense you’ll encounter in life, bigger then your home or the cost of getting your kids to college. Income taxes are the prev alent barrier to real financial security. You can never build any real wealth wi thout first getting your tax life under control. You may have heard the expressi on “tax freedom day.” That’s the day when we stop working for the government and begin working for ourselves. My experience in working with thousands of families indicates that most could su bstantially reduce the amount of income taxes they pay simply by adopting a soun d tax reduction plan. There are legitimate ways to lessen your tax burden, which frees more of your money to be used for any purpose you choose. The sad fact is that the IRS will never tell you about a tax deduction you didn’t claim. Discovering legitimate deductions is up to you. Every strategy that I hav e explained in this free report will reduce your taxes honestly, legitimately, a nd with the full approval and blessings of the IRS. As you read this report you may recognize tax savings that you failed to claim w hen filing prior tax returns. Don’t worry. You can go back, amend prior tax return s, and claim a tax refund. Amended tax returns must be filed within three years from the date you filed your original return or within two years from the time y ou paid your tax, whichever is later. Our tax system is indeed very complex, and tax laws are ever changing. The Inter nal Revenue Code, the Federal Tax authoritative guide, is a thick book with over 1.3 million words. Albert Einstein was quoted as saying “The hardest thing in the world to understand is the income tax.” Generally, there are two principles in reducing your taxes: Make money you spend tax deductible as you spend it Use the power of retirement plans and investment tax shelters Numerous strategies are identified within this chapter that you can use to subst antially reduce your income taxes. It’s important to realize that tax planning is a year-round activity. With that mindset, you will rethink the day-to-day busine ss and personal financial decisions you make relative to the tax liability they may create. Tax Strategies vs. Tax Loopholes or Tax Cheating In pursuing lower income taxes, it is never necessary to resort to tax cheating or tax loopholes, or even to question the legality of the tax system. There is a big difference between cheating, loopholes, and strategies. This report is not about “tax loopholes” or the “gray” (questionable) areas of tax law. It is not about tax tricks, “tax avoidance,” or “red flags” to get you audited. Tax strategies are positive , legal use of the tax laws to reduce your income taxes. Tax strategies are acti ons you can take that automatically and legally qualify you for additional deduc tions. These deductions are IRS-approved. And each and every one is money in you

and other travel fares that are involved in doing your ch aritable work. The education maintains or improves skills needed in your present work. You can deduct travel expenses incurred by traveling to charitable organizations fo r meetings. If you are reimbursed less than 55 cents per mile. and the easier of the two to use. such as costs of research and typing when writin g a paper as part of an educational program Strategy # 3 – Deduct a home-based office when used for your employer People who work for companies whose headquarters or branch offices are not locat ed in the same city as the employee. Strategy # 1 – Deduct your job-related auto expenses and/or charitable mileage When you use your automobile at your employer’s request to run job assignments and your employer does not reimburse you. The first. the IRS never lets them know of the missed tax savings. can often use these deductions. Some tax strategies are straightforward and obvious. as well as bus. but less well understood. Naturally.prepared tax returns. the mileage between the two jobs is als o deductible. fund-raisers. taxi. you may deduct 55 cents per mile (for the year 2009). you can deduct t he difference. Even employees who do adm . Two methods are acceptable for deducting automobile mileage expenses. The other method is the act ual expense method. You can also take deductions related to charitable gifts and volunteer work. Deductible expenses. or Is part of a program of study that will qualify you for a new trade or busin ess. When reviewing past self . The following education-related expenses can be deducted. just as easy to use. Other tax strateg ies are just as legal. This is education that meets a t least one of the following two tests: The education is required by your employer or the law to keep your present s alary. is the Standard Mileage deduction. supplies. You can deduct parking and toll fees. As describ ed above. maintenance. or other events. repairs. or outside salespeople who often use their home office as a base. even if the education meets one or both of the above tests. Certain transportation and travel costs. You can deduct the expenses for qualifying education even if the education c ould lead to a degree. The required education must serve a bona fide business pu rpose of your employer. The automobile mileage deduction is taken on Form 2106. Tuition books. status. and depreciation. or job. whereby you deduct the business portion of the automobile ex penses such as insurance. lab fees.r pocket. gas. it is not q ualifying education if it Is needed to meet the minimum educational requirements of your present trade or business. However. If you have a second job. and similar items. Other educational expenses. it allows you to deduct 55 cents per mile. I come across many people who overlooked this deduction. Strategy # 2 – Deduct your job-related education expenses You can deduct the costs of qualifying education.

The regular and exclusive business use must b e for the convenience of your employer and not just appropriate and helpful in y our job. But if you are below those income thresholds. you can deduct the contributions you and your wife make to IRA accounts. Even if your income begins to go beyond the th reshold as you become more successful. as you can see from the table below. Your results may be more or less . By investing in a Roth IRA. Your home office must be in an area of your home that is set aside regularly and exclusively for that purpose. you can still take up to $3.200 annual investme nt in the tax-deferred retirement plan (before taxes).000 of ca pital losses against your ordinary income. Strategy # 5 – Fund your retirement plans to the maximum Retirement planning and estate planning tips There are many ways you can reduce your tax liability through putting aside mone y for your retirement and planning wisely for the transfer of your estate. or patients. you can put aside as much money as possib le in a Roth while you still qualify. The trick is in defining capital gain s and losses. you are able to take advantage of the compounding ef fects of your investment returns on a tax-free basis. The office in your home has to be your primary office – you can’t have another o ffice at your employer’s regular business location. Even if y ou have no capital gains from investments. money that you get back from an investment that is simply a return of your origi nal principal does not qualify as a capital gain. There are limits to how much income you can make and still be able to contribute to a Roth. y ou come out with a much greater advantage by allowing your returns to compound t ax-free for the years to come. however. If you qualify for a Roth IRA. Your home office must be used to meet with customers. . The power of tax-deferred compounding Assumes a 28% tax bracket. In addition. you do not ha ve to pay any taxes on the money you withdraw after age 59½.200 before taxes withheld) in the comparable taxable savings plan. vendors. you can take any capital losses a gainst those gains and pay no tax on your positive investment returns. You traditionally receive divi dends that include return of principal from such investments as real estate inve stment trusts (REITs) or utility stock investments. and there may be a 10% federal tax penalty for withdrawals made prior to age 59½. Within certain lim its. There are rules that must be followed in these cases. but. and an $864 annual invest ment ($1. Retirement assets will be taxed eventually (upon withdrawal). You cannot deduct you r contributions to this type of IRA.inistrative paperwork in addition to their regular duties that require an outsid e office environment can use their expenses as a deduction. Strategy # 4 – Take deductions for capital losses If you have capital gains on your investments. This illustration does not represen t the performance of any particular investment. you can save a tremendous amount in taxes in your l ater years. a constant 8% annual return. Inves ting in tax shelters can pay off handsomely in the long term. At least you will have the advantage for t hat pool of funds. a $1. For instance. This example reflects federal income taxes only. you should contribute as much as possible to your Roth.

investors will have learned from this mistake and will be more carefu l to diversify their investments both inside and outside of their 401(k) plans. It’s easy to see why employers would choose a 401(k) over the other two plans. you give a much more va luable gift to the recipient. but the gift of stock can go on appreciating t o much more than the original $13. In a d efined benefit plan.After your income goes beyond the threshold. Self-employment options If you are an independent contractor or if you own your own company.000 per year to each of your children. Strategy # 6 – Gifting assets to your children You can gradually take money out of your estate by giving it away. entertainer. Many investors have lost their e ntire retirement nest eggs by having their 401(k) plans invested only in one thi ng – usually the company’s stock where they are employed. give the stock shares away. grandchildren.000 gifting capability between the two of you each year per reci pient. or anyone else w ithout paying federal gift taxes. you have a few other tax shelter choices. or aSEP plan. If you are en entrepreneur. you can reduce its value by giving away $13. do not sell the stock first and give the sale proceeds. lawyer. If the company experiences a down year. Hopefully. One of these is a Simplified Employee Pension pla n. That means that no matter what happens in the investment markets or the economy. 000 per year in a mix of these types of plans. But you must be careful to find out whether you are allowed to ma ke other investments than in the company’s stock. but you mus t also establish pension plans for your employees. the employer guarantees the benefits of the plan to you as an employee. within certain limits. Your spouse can gift money as well. it must find a way to make that contribution no matter what. You can contribute to a 401(k) program. writer. a doctor. Man y employers provide matching contributions to some degree to 401(k) contribution s after you are “vested. these gifts are an excellent way to h elp with the educational needs of their grandchildren or to pass on their legacy without paying undue taxes. You can tuck away a significant portion of your income in these and other plans such as Keoghs.000 worth of stock as your gift. You can contribute up to 13 percent of your income in a SEP and other profit-sharing plans and up to 20 percent in Keogh and defined contribution plans. employers are bound to a specific percentage c ontribution of the company’s profits to the employees. you can use a Keogh plan. You can shelter a total of $30. or other such entrepreneurial professional. thus allow ing a total $26. With a defined contribution plan. Many employers have done away with their defined benefit and de fined contribution plans as a result of the more popular 401(k) plans. One note: if you use $13. your employer is bound to give you a specific amount of benefit fo r your retirement. He or she will have to pay taxes on the value of t he gift at the time it was given. If your estat e is larger than the normal exclusion amount. This is b ecause their liability is less with a 401(k) than with either of the other plans .000 value. . If you have a partner. more than likely you can set up one or more of th ese types of plans.” or after you have stayed with the company for a certain nu mber of years. there are other tax shelters you ca n use for your retirement. For very financially affluent individuals. or you can ta ke advantage of a defined benefit or defined contribution program your employer may have set up. Why? If you use the stock itself as the gift.

Some amendments are safer than others. though. most importantly. then let the child sell it under his or her tax rate instead of yours. Do You Engage in Tax Planning Year-Round? . Sending a child to day camp is also an eligible expense for employees who are paying child-care expenses through flexible spending arra ngements at work. The audit rate for amended returns.and dependent-care credit covers expenses for the care of children un der age 13 (or an incapacitated dependent of any age) while the parents are at w ork. Only day camp costs count. while higher then that regular returns. For children under age 13. your state tax liability from that year may be affected. too. prevents many taxpayers from get ting refunds they are entitled to. The child. is to give t he stock and allow it to appreciate into a much more valuable long-term gift for the child. the credit applies to expenses of up to $3. This will help make the most of the gifts you give for the child’s col lege education. inform you of new tax-saving opportunities and alert you to danger ous tax traps. Many types of amendments are proce ssed routinely. Make note that when you amend your federal tax return. m ore and more help will be needed. are ever audited. Strategy # 7 – Write-offs for children’s summer camp Day camp costs are eligible for the child-care tax credit and employer-sponsored “flexible spending arrangements” (FSA). if you are giving the gift to a child under age 14. Strategy # 8 – Choose an aggressive and knowledgeable tax preparer or none at all Whether you use a tax preparer is strictly a matter of choice. This fear. Any salary set aside in an FSA to pay eligible de pendent-care expenses is exempt from income tax and Social Security tax.800 for two or more dependents. It could lead to an even bigger tax refund. especially if the child is very young and several years will bef ore the money will be needed. Generally. The truth about amended returns is that they are not an automatic invitation to an audit Very few. Most taxpayers are afraid that they’ll trigger an audit if they file an amended return. The cost of sending a child to sleepover camp isn’t eli gible for either the child tax credit or payment through flexible-spending accou nts. The best thing.000 a year for the ca re of one child and up to $4. you can give the stock. A good tax preparer is hard to find. Strategy # 9 – Filing amended tax returns Finding hidden treasures in prior years’ returns is a very exciting process. He or she is an aggressive tax preparer who is up-to-date on all the new tax laws and the ir interpretation.Or. guide you through financial transactions. the cost of day camp is eligible for the child and de pendent care tax credit. FSAs also provide tax savings. in fact. is still quite low. You can minimize the risk of an audit by sending back-up documents with your 1040X (the form used for mak ing amendments). Many working parents who are sending their younger children to day camp this summer can count on the tax code to help subsi dize part of the cost. Such a tax preparer can help you rethink your tax situation i n light of the new tax laws. Almost 65 percent of taxpayers use a tax preparer. and. which is common and understandable. and with the complexity of the new tax laws. which wil l be a much higher tax rate than the child’s.

Enjoy the potential tax savings through implementing some of the tax breaks and strategies that I have identifi ed in this report while these breaks exist. Call us at (405) 285-7701 if we can hel p or visit us on the web at www. if you make tax planning your year-round concern . do you consider the tax consequences? Make year-round tax planning part of your business management mindset and thus e njoy maximum tax savings. and other expenditures with tax savings in mind? Do you document your expenses well so that they would survive a tax audit? Whenever you are faced with a business or personal financi al decision. you will sa ve a fortune in taxes. But taxes have gotten big ger and their boats have gotten larger until now the president crosses the Delaw are in his private yacht.mycpateam. Don’t miss the boat (yacht)!!! “Of course. and have you documented your business use mileage? Can you arrange for more of your entertainment expenses t o be business related? Have you listed the business purpose on each receipt? Do you make business and personal purchases. you will save a fortune in taxes. 1928 Danny Mueller & Samantha Plank CPA Plus+ . legally. investments.com My final word of tax advice Changes in tax laws in this country are ongoing. but that has been promised by every preside nt since Washington crossed the Delaware in a rowboat. lower taxes were promised. By rearranging your affairs to account for tax implica tions.Many people worry about their taxes only during tax season. However.” Will Rogers. Can you make some changes to turn your hobby into a moneymaking business? Can yo u use that extra room in your house as a home office for your business? Can you arrange to use your car more for business purposes.