Getting An Early Start On Your Tax Planning
Consider the following suggestions to see if they might fit your overall financial plan while cutting your taxes, too.
Make Maxium Contributions to Tax-Favored Retirement Accounts. Most retirement accounts give you the double benefit of a tax deduction of your contribution and tax-deferred growth within the account. Find the best retirement plan for your situation, and make the maximum allowable contribution for 1999.
Amoung Your Choices: 401(k), 403(b), Keogh, SEP, SIMPLE, and an IRA. Make your contributions as early in 1999 as possible to maximize your tax-deferred earnings. Use a spousal IRA if you have a non-working spouse, and contribute up to $2,000 a year. If you have a company-sponsored retirement plan, your eligibility for a spousal IRA will begin phasing out once your income reaches $150,000.
Be Tax-Wise if You Borrow. Review and restructure your existing debt so the money you pay towards debt service is at the most favorable tax terms. If you must borrow, consider a home equity line as it has the best chance of deductibility.
Hire Your Children to Work in Your Business. You'll be able to deduct their wages, and their earnings will be taxed to them at their low rates. If your business is unincorporated, you won't have to pay social security taxes on wages you pay to a child of yours under age 18. ADDED BONUS: Your child will have earnings to qualify him or her for an IRA.
Consider Taxes in Any Major Financial Transaction. Before making any major financial decision in 1999, get the facts on the tax consequences involved. By structuring a transaction a certain way, you can often save significant tax dollars. For example, if you plan to sell a piece of investment property, you could look into a tax-deferred exchange.
Review All Your Options. This newsletter is too short to mention every tax-cutting possibility for your situation, but here are a few more breaks you might want to investigate further:
- Tax-favored medical savings accounts for self-employed individuals and employees of small businesses.
- Tax-deductible long-term care insurance.
- Gifts of income-producing assets you don't need.
- Flexible spending accounts for child care costs and medical expenses.
- Donations of appreciated assets to charity.
- Tax break for investing in qualified small business stock.