In these economically tough times, most people are looking for ways of saving taxes. There are many ncentive tax savings through purchasing of homes or starting new businesses, but only a few taxpayers would go to those lengths to save tax. The good news is that there are numerous other tax breaks ranging from energy saving home improvements to tuition costs and child credits that you can avail.
One of the easiest ways to reduce you tax liability is by contributing to a deductible IRA. If your income is less than $53,000 and you are lesser than 50 years in age, you can contribute up to $5,000 to your IRA. If you are 50 or older, you can contribute up to $6,000. You can make this contribution as long as your income is less than $63,000, although the contribution limit goes down as your income rises. For couples, these limits have been set at $85,000 and $105,000.
Another great way to save tax is to open a health savings account, or HSA. Such an account is usually accompanied with a high deductible health insurance plan. You can deposit some of your pre tax income into that account. If you need to pay for any medical expenses during the financial year then you can use your savings from this account or you can keep accumulating for post retirement withdrawals.
If you are over 70 1/2 years, then you should know that you don’t have to make any required minimum distributions (RMDs) from your retirement account for 2009. Similarly, there are many other simple options available to you if you want to save tax this year.
Though the government tries hard to make tax breaks easy to understand, it is better to deliberate upon each aspect and exercise patience throughout the process to make sure that you are deriving the maximum possible benefit. You can always take the help of a tax adviser or an automated system to figure out the tax breaks that apply to you. But even there you could be faced with a long list of questions.
So it is always a good idea to have some basic knowledge about the tax breaks being offered and go well prepared for your meeting with the adviser. You should also be careful about maintaining documentation of every major transaction as it might be needed as evidence that you are eligible for a particular tax break.