Two Easy Ways To Trim Your Federal Taxes

Hi All,

Since this year is quickly winding down, you might be thinking about next years income tax bill. Probably you're wondering about how to figure out how to make it smaller. After giving the matter some thought, I wanted to suggest a couple of easy things you can do to minimize your federal tax burden.

1) Maximize Contributions to Retirement Plans: We've blogged about this before, but if you have a 401k or a 403b plan you should consider increasing the amount you contribute. The reason is every dollar you contribute to a plan is a dollar off your federal taxable income. Depending on your tax bracket, that can add up to a substantial savings. Not only do you get the reduced taxes, if your retirement plan money is well invested, you'll have the advantage of having your funds on the stock market in tax-deferred account. That's a two for one - a "no brainer".

My wife Miel does this, and before going back to school I did this also. So in this case we've been practicing what we preach.

2) Research Credits and Deductions: - Congress and the IRS are always tinkering with the internal revenue code, so what you can take off your taxes changes every year. Because it does change so frequently the best thing to do is go straight to the source. You might consider getting a copy of the relevant IRS form 1040 and publication 529, miscellaneous deductions. Look at those, but they won't tell you the whole story. The next thing to do is use google to search the relevant personal finance columnists on the web. The columnists should be able to give you a general sense of what you should be doing.

It takes time for the newest IRS changes to filter out to offline personal finance literature. So, to get a general sense of what tax credits and deductions you can take, you might invest an hour or so checking these sources - most personal finance books are a year or two out of date.

Of course, there are tax benefits for staring a small business and owning your own home, however, its not exactly easy to do either of these. On the other hand, it doesn't take much effort to adjust your retirement plan contribution or search the web, they're both easy and can result in substantial savings.

Best,

James