There are several ways to reduce your taxes, and each with several variations.
- Reduce Your Income- Adjusted Gross Income (AGI) is a key element in determining your taxes. AGI is determined by your income (including wages, interest, capital gains, income from retirement accounts, alimony paid to you) adjusted downward by specific deductions (including contributions to deductible retirement accounts, alimony paid by you); but not including standard and itemized deductions. The best way to reduce taxes is to reduce your income. And the best way to reduce your income is to contribute to a retirement plan. Your contribution reduces your wages, and lowers your tax bill. While retirement accounts provide the opportunity to save money for the future in a tax-free or tax-deferred environment, a self-directed IRA allows you to benefit in a variety of alternative investment opportunities with the potential to earn even more. With a self-directed individual retirement account you get the benefit of reducing your income AND selecting your own investments for your retirement funds. Retirement plans for individuals come in all shapes and sizes. The most popular include Traditional Individual Retirement Accounts (IRAs) and Roth IRAs. For small businesses, 401(k)s, SEP IRAs and SIMPLE IRAs are common. In addition, there are savings plans for special needs, such as Coverdell Education Savings Accounts and Health Savings Accounts. To reduce your taxes, pay yourself and save for retirement, either through an Preferred Trust 401(k) or Traditional IRA. Contributions to these retirement plans will lower your taxable income, and lower your taxes.
- Increase Your Tax Deductions - Itemized deductions include expenses for health care, state and local taxes, personal property taxes (such as car registration fees), mortgage interest, gifts to charity, job-related expenses, tax preparation fees, and investment-related expenses. Your standard deduction and personal exemptions depends on your filing status and how many dependents you have. You can increase your standard deduction and personal exemptions by getting married or having more dependents. Itemize your deductions throughout the year. Keep in mind that the three biggest deductions are mortgage interest, state taxes, and gifts to charity.
- Take Advantage of Tax Credits - Tax credits also reduce you will pay. There are tax credits for college expenses, for retirement saving, and for adopting children. One of the best, and most abused, tax credit is the Earned Income Credit (EIC). Unlike other tax credits, the EIC is credited to your account as a payment. And that means the EIC often results in a tax refund even if the total tax has been reduced to zero. You may be eligible to claim the earned income credit if you earn less than a certain amount.
- Increase Your Withholding - Finally, you can avoid owing at the end of the year by increasing your withholding. More money will be taken out of your paycheck throughout the year, but you will get a larger refund when you file.
SEC Resources
The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.
The following information is available on the SEC website.
Investor Information - The SEC's Office of Investor Education and Assistance provides a variety of services to address the problems and questions you may face as an investor. We cannot tell you what investments to make, but we can tell you how to invest wisely and avoid fraud.
For Seniors - Whether you are nearing or already enjoying retirement, it pays to stay on top of your finances. Nearly one-third of all U.S. investors are between 50 and 64 years of age, and approximately 5 million senior citizens succumb to financial abuse each year.
Check out Brokers and Advisors - Federal or state securities laws require brokers, investment advisers, and their firms to be licensed or registered, and to make important information public. But it's up to you to find that information and use it to protect your investment dollars. The good news is that this information is easy to get, and one phone call or web search may save you from sending your money to a con artist, a bad financial professional, or disreputable firm.
Hedge Funds - Like mutual funds, hedge funds pool investors' money and invest those funds in financial instruments in an effort to make a positive return. Many hedge funds seek to profit in all kinds of markets by pursuing leveraging and other speculative investment practices that may increase the risk of investment loss.
Financial Planners - A financial planner typically prepares financial plans for his or her clients. The kinds of services financial planners offer can vary widely. Some planners assess every aspect of your financial life including saving, investments, insurance, taxes, retirement, and estate planning and help you develop a detailed strategy or financial plan for meeting all your financial goals. Other professionals call themselves financial planners, but they may only be able to recommend that you invest in a narrow range of products and sometimes products that aren't securities.
Investment Advisors - The SEC receives many questions about investment advisers what they are and how to go about choosing one. This document answers some of the typical questions we receive from investors about investment advisers. This Q&A is for the benefit of investors. You should not rely upon it to determine if you need to register as an investment adviser.
Accredited Investors - Under the Securities Act of 1933, a company that offers or sells its securities must register the securities with the SEC or find an exemption from the registration requirements. The Act provides companies with a number of exemptions.
