Tax-Saving Strategies for IndividualsPublished:
If you file your income taxes as an individual, you might miss out on many of the tax strategies and advantages available to businesses. That’s why it is all the more important to utilize the tax strategies you can take advantage of as an individual filer.
One useful tax strategy for lowering your MAGI (modified adjusted gross income) is to defer some income until the following year. For instance, you could ask your employer to pay your year-end bonus in January, or delay billing your customers until the new tax year if you are self-employed.
Another tax strategy you may find helpful is to invest in a 401(k), IRA, or other retirement plan. The amount you contribute will be excluded from your taxable income, and many employers will make matching contributions to employees’ retirement funds. If you are self-employed, consider setting up a Keogh plan as an alternative.
If you invest in a mutual fund, the gains from that fund are considered taxable capital gains even if you don’t withdraw your investment. A fund which buys and sells stock at a high rate is a high-turnover fund, which can benefit higher-risk investors. However, if your primary concern is tax strategy, look for funds that hold onto their investments longer. Another tax strategy for mutual fund investors is to use your retirement plan to invest in the fund, since many of the available plans are tax-sheltered.
As an investor, it is an important tax strategy to make sure that your capital gains don’t pile up in one year, putting you in a higher tax bracket than you would be in if you deferred some gains until the following year. When in possession of a stock or bond that has gained in value since you acquired it, it may be a prudent tax strategy to wait until January to sell it. Conversely, you may also want to accelerate the selling of a stock or bond that has lost value, and is unlikely to recover anytime soon, so that you can utilize the tax strategy of claiming capital losses in the year that you most need them to offset your capital gains.
Finally, it is common-sense tax strategy to keep track of all possible tax credits and tax deductions, such as those for mileage and energy-saving home repairs. Money or property donated to charity can also be deducted for up to 50% of your MAGI. Although these deductions may be small, they can add up to enough savings that it was well worth the trouble to itemize them on your IRS tax form.
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