Good Accounting in Place
Bruce Budofsky, a partner with New York-based accounting firm Allen Schneider, recommends that you get a good accounting system established, hire an outside accountant, or both.
Budofsky also offers tips to help retain more of your paycheck:
Invest in a 401K plan, since it is tax deductible.
If you rent a house or an apartment, consider looking to buy because mortgage interests and real estate taxes are tax deductible. If you are in a higher tax bracket, try to invest in municipal bonds and secure a long-term capital gain (holding stocks longer than one year) if you can).
Obtain an IRA deduction -- if you don't have a pension plan, you are eligible.
Get a receipt for any items greater than $500 that you donate to charity.
Look to refinance a mortgage when interest rates go down; right now is a good time to do so.
Consider paying points on a mortgage. This gives you a lower interest rate and cuts down monthly payments.
Tax Tips for Individuals
According to Joseph Solomon, president of Joseph Solomon Financial Group, a financial services corporation, you should take a closer look at capital gains. "If individuals in the marketplace suffer a severe capital loss," he says, "they should consider offsetting this by selling items with heavy capital gains, thus breaking even from a tax point of view."
Tax Tip: Capital losses up to $3,000 can be deducted annually. If you have to report large gains, you should consider accelerating losses by this method.
Solomon advises learning about various education credits and the deductibility of student loan interest. With the Hope scholarship, qualified individuals are allowed a tax credit of $1,500 for each of the first two years of college. In addition, individuals are allowed a Lifetime Learning Credit of $1,000 for post-secondary learning. For example, 20 percent of the first $5,000 paid in qualified education expenses.
Since 1998, Solomon says, we have been allowed to make non-deductible retirement contributions up to $500 annually towards the education of a child, until they reach age 18. Earnings accumulate tax-free for years. Interest paid on college loans will be deductible for qualified individuals--in 2000, deductible interest is $2000; in 2001, it will be $2,500.
Do the Research
Look into certain retirement accounts: If you are 50 to 55 years old or younger, consider a Roth IRA deduction each year. This $2,000 non-deductible contribution accumulates tax-free, as long as it is in the account at least five years and you withdraw at age 59 1/2 or older. It has other advantages over the traditional IRA as well.
Another Solomon Tip: Use distributions from certain retirement accounts to pay for qualified higher education expenses, a home, medical expenses, disabilities, or death -- and you won't incur the standard 10 percent penalty.
Starting your own business also has many favorable benefits, Solomon adds. Homeowners can take advantage of beneficial home sale rules. If you sell your home and you have owned and lived in this property as your main residence for at least two of the five years period prior to the date of the sale, you can exclude capital gains tax on $250,000 for a single person and $500,000 for a married couple.
Final Tax Tip: You can buy a home today, live in it, improve it substantially for two years, then sell it at a gain without tax penalty as described above. What's more, enterprising individuals can do this every two years.
Erin Flynn is a freelance writer and managing editor of Stephan Schiffman's Executive Sales Briefing, a newsletter for sales professionals in every industry. She has interviewed successful authors, business consultants, and sales experts.(c) 2001 CareerBuilder.com
The views and opinions expressed in these articles do not necessarily reflect those of College Central Network, Inc. or its affiliates. Reference to any company, organization, product, or service does not constitute endorsement by College Central Network, Inc., its affiliates or associated companies. The information provided is not intended to replace the advice or guidance of your legal or medical professional.