Friday, February 13, 2015

How can I save on my taxes?

Today is February 13 and tomorrow is Valentine's day. But two months from now would be April 15, also known as the deadline for paying income tax for individuals.

1. Earn income that is tax-free or taxed less. Pensions and lotto winnings are generally tax-free. Passive income usually comes from interest, dividends, royalties, etc. and is generally taxed at a lower rate than compensation income. Shift your money to income opportunities that is taxed less and get more returns for the same amount of work.

2. List all your business expenses because these may become tax deductions. It's good business sense to keep your business and personal finances separate and to list all your expenses. If you are a sole proprietor, you can deduct expenses for your business, even if you derived some kind of personal use from it, as long as the primary purpose is for the business. 

3. Schedule when you will receive your income. If you earn by commission or per transaction and a certain transaction will increase your taxable income into a higher tax rate, you might want to schedule the transaction or the receipt of the income for the next year if you can. If this is not possible, just save this income instead.

4. Settle estates and pay estate tax within a reasonable time. If a parent, child, or spouse dies, the children, parents, and spouse become compulsory heirs and settle the estate of the deceased. The estate of the deceased has its own Tax Identification Number (TIN) and provides for many exceptions. Settle the estate promptly to reduce interest and surcharge.

5. Sell property to another person instead of giving it away. One tax avoidance strategy is to sell property instead of giving it away by will or donating it to a person. But the price of the property must reasonable. If the price is too low, the tax man will know that the sale is actually a donation and impose donor's tax.

6. Donate to the government or for education. If you want to donate and get tax credits, give your property to the government or for education and other charitable purposes. You may stipulate as much as you want in the donation. If you have a large company which makes a lot of money, consider creating a non-profit foundation so that the money you give away to the needy will help you get tax credits.

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