Six Ideas to Cut your 2014 taxes.

Proper planning now could reduce your 2014 income taxes. Here are six ideas to get your planning started.

1 Limit wage and investment income. As many high-income taxpayers found out in 2013, there are new Medicare surtaxes on wage and investment income. Try to reduce your wage/investment income for 2014 below the thresholds in order to avoid the increased Medicare taxes.

2 Defer your income. When possible, make maximum contributions to your deferred compensation account, such as a 401(k), 403(b), etc. This will not only reduce your wage income subject to the new Medicare taxes, but will also reduce your current taxes overall. If your employer doesn’t offer this type of savings account, consider a traditional, deductible IRA.

3 Make an installment sale. If you are selling investment or rental property, consider an installment sale to spread the gain on the sale over a number of years.

4 Consider municipal bonds. Review your portfolio to see if municipal bonds are a good fit for you. Muni yields of 3.6% equate to a taxable yield of 6% at the highest bracket. Municipals issued by your own state are free from both federal and state taxes. And municipal bond interest does not trigger the new Medicare taxes on investment income.

5 Use a health savings account (HSA). Consider tax-deductible contributions to an HSA if you have a high-deductible medical plan. The contributions not used for current medical expenses can be left in the account to grow tax-free until needed.

6 The best way to reduce your taxes is to know how the tax code applies to you specifically. There is a right and wrong way to do things from a tax standpoint. The tax savings in selecting the right way will reduce your taxes not only for 2014 but also for years to come.

Monday, August 18, 2014