Keeping more of what you earn is a mantra heard everywhere. We all want less of our hard-earned money going to taxes; the key is learning how to do it.
Where to Start
When you’re looking to lower your tax bill, you’ll probably want to meet with your tax adviser or accountant. But your portfolio could yield some opportunities, too.
Below are a few ideas to consider. While some may be better suited to you than others, you can talk to a financial advisor at Joshua Cumrine Financial about which ones make the most sense for your personal situation.
Your Retirement Plan
There are two types of retirement investments that are designed to offer major tax benefits: a Traditional IRA and a Roth IRA.
A Traditional IRA provides tax advantages in a couple of ways. First, your contributions could be tax deductible. And second, your earnings are tax-deferred, so you only pay taxes when you make a withdrawal.1
A Roth IRA provides the opposite. Although not tax deductible, your contributions are made with after-tax dollars, so your earnings grow potentially tax-free. Distributions can be removed penalty free and tax-free if certain guidelines are followed.2 Be aware that a Traditional IRA can be converted to a Roth IRA by utilizing the IRA Conversion strategy.”
It’s also important to note that for both a Traditional IRA and a Roth IRA, the best thing you can do is contribute the maximum amount you can or, the maximum allowed by law on a yearly basis. IRA Contribution Limits for 2009 and 2010 are $5,000 and $6,000 (if you are over the age 50).
Consider Other Areas
In addition to your retirement plan and your portfolio, you might find tax benefits in other areas of your life. For example, if you have a home-based business, you may want to see if you qualify for home office deductions. This could include claiming a percentage of your total home ownership cost, deducting daily expenses like office supplies, postage and more. Another idea for those who are recently married is to see what the difference would be in your tax return if you filed “jointly” versus “married filing separately.” 3
Talk to Us
To see how some of these ideas could work for you, contact a financial advisor at Joshua Cumrine Financial. We can assess where you are now, talk about any steps you’ve already taken and figure out where to go from there. Bottom line: When you lower your tax bill, you keep more of what you’ve earned. And that’s something everyone wants.
1. Distributions taken prior to age 59 1/2 will be subject to a 10% penalty. 2. Earnings distributed from a Roth IRA may be subject to income tax and a 10% penalty if the client has not satisfied the five-year holding period and is under age 59½. 3. Please consult your tax advisor. Joshua Cumrine Financial is not authorized to offer tax or legal advice.