tax breaksWant to help manage your year-end taxes? Here are some tax-saving planning tips: Donate to your favorite charity. Charitable contributions to a qualified tax-exempt organization are an excellent way to decrease your taxable income. Plus, they help others. Do you have an older vehicle sitting around that nobody uses? Donate it. Older clothes, etc. Be certain you receive a receipt (written acknowledgement) containing the dollar amount of your donation. This will be needed for tax purposes. The IRS does not consider a cancelled check alone as sufficient proof of a donation of $250 or more. Buy U.S. Savings Bonds. These investments are tax-free until the date they are cashed. In other words, the income is deferred until the day you cash them. Hire your children. If you own a business, consider hiring your children to shift some taxable dollars to them. By hiring your own kids to work in your business, you lower your taxable income and the kids receive tax-free income. If they are too young to perform easy tasks such as washing the company car, include their picture in your company literature. Older children can perform tasks such as filing and answering the phones. Stock Option Trust. Consider putting some or all of your nonqualified stock options in trust for your children. Although you must pay income tax on the value of the options when they are exercised, you could save quite a lot of estate and gift tax. Most option plans may need to be amended to allow this type of transfer. Consult with your financial planner for more details. Life insurance proceeds. Another way of transferring money to other members of your family is via life insurance. The face value of the policy is not taxable to the recipient if such amounts are paid by reason of the death of the insured. Life insurance is considered a form of trust, whereby the insuring company is the trustee. Interest received from the policy is taxable to the recipient, however. Distribution amounts (income) will be shown on Form 1099-R. Gifts. Consider giving gifts of either property or cash to help reduce your tax liability. Excluded from gross income are the following:
  • each taxpayer is allowed one annual exclusion of up to $13,000 as a donee, there is no limit to the number of donees;
  • cumulative gifts to minors up to age 21, only when held in a custodial account until that age;
  • direct payments to educational institutions and medical care facilities on behalf of ANY family or nonfamily member;
  • one-time lifetime/deathtime exclusion of around $5,000,000 (actual amount varies according to year of gift).
Using any of these tax-saving suggestions will benefit you, your family, and your pocketbook. Not using Taxbrain yet? Get a free account today and get unlimited free technical support to help you finish your tax return.