Strategies to Minimize Taxes
No one likes paying taxes, but they are one of the two most certain things in life. Knowing that you'll have to pay taxes, there are legal strategies to minimize your tax payment. With some advance planning, you can reduce the amount of taxes you pay during a given year. This way you can keep more money in your pocket for your family and the things your family cares about come April 15.
Giving to Charity
One way to minimize your tax burden is to give to charities you and your family care about. You don't necessarily need to give cash. You can save money on your taxes by volunteering your time or donating goods. These are valid charitable contributions for federal tax purposes. Even the miles you drive in your car for charity can be deducted from your taxes at a rate of 14 cents per mile as of 2010. Nearly everyone has extra time or junk cluttering up their attic or garage they can donate to charity. Some would prefer to have their money go to worthwhile charities rather than the federal government. It is important to keep all receipts of donations, time, money and goods to make charitable deductions.
Not all income that you receive must be subject to taxes in the first place. Some of the ways you can have tax-free income is through investment. Interest on municipal bonds is not taxed at the federal level and many state governments also do not tax interest on municipal bonds. There is a downside--the rate of return may be lower than on a taxable bond. You will need to look at your portfolio and the local return rate of return on municipal bonds to see if this is the correct tax strategy for you.
There are ways for you to save money that are not subject to taxation. Flexible spending accounts and medical savings accounts can be used to pay for medical expenses with pre-tax dollars. Retirement accounts such as Roth IRAs and Roth 401(k)s are not taxed. Saving for your family's education can also be tax-free when the money is put into Education IRAs and College 529 savings plans. The money put in these education accounts must be used for education or it will be taxed.
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