10 additional tax tips that can help you save even more for retirement

Chapter 47: 10 additional tax tips that can help you save even more for retirement

Have you read our previous list of tax tips in Chapter 44 that can help you reach your retirement goals? It was so popular, we found ten more that you’ll find equally valuable.

Tip #1:

Write-off mortgage interest.

If you have a mortgage on your home, make sure you write off your mortgage interest payments from your taxes. (You’d be surprised how many people skip this popular deduction. Kiplinger, TurboTax and many other popular resources cite this as one of the most frequently missed deductions.) The same is true of interest on payments for a home equity loan. Use some of the tax savings from this deduction for retirement.

Tip #2:

Select the right structure for your company.

If you own a business, make sure you’ve chosen the right structure for it: sole proprietorship, partnership, corporation, limited-liability company or a hybrid. You could be paying too much in taxes if you’re running your business under the wrong one. It’s worth meeting with a tax expert or lawyer to make sure that your business structure is the optimal one for you. It could save you a lot in taxes and give you more money to put toward retirement.

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Tip #3:

Keep records of charitable contributions.

Most people know that they can write off charitable contributions from their taxes. You’d be surprised how many people make cash donations and never ask for a receipt. Little gifts can add up in a really big way over time. A donation made without a receipt is likely forgotten and can’t be proved in an audit. Always get a receipt, or make it a rule to give donations using a credit or debit card or by check. Bank statements and cancelled checks can serve as a record of charitable giving.

Tip #4:

Take credit for doing good.

Do you do work for causes you care about? Then keep track of your out-of-pocket costs of doing good things. Maintain records of everything, from what you spend on stamps for invitations to a fundraiser, to the cost of ingredients for the brownies you make for a bake sale, to the number of miles you drive your car for charity. Add these costs to your cash contributions when figuring your charitable contribution deduction. These small amounts of money added together will help you save significantly on your taxes. Of course, use the money you save on taxes for doing good things to benefit your retirement.

Tip #5:

Plan your giving.

Spontaneous generosity is a good thing. You should always give from your heart when the time feels right. However, once your giving hits a significant level, meet with your financial advisor or tax expert to come up with a plan to optimize your charitable giving. Planning how much you give to different organizations and when will help optimize your charitable tax deduction.

Tip #6:

Write off the costs of medically required home improvements.

If you make medically necessary changes to your home — for yourself or relatives that live with you — keep careful records of them. To the extent that the costs — for example, adding a wheelchair ramp, lowering counters or widening a doorway — are higher than the value they add to your home, that amount can be deducted from your taxes as a medical expense.

Tip #7:

Don’t let home-office rules scare you.

If you’re a business owner and use part of your home regularly and exclusively for business purposes, you can deduct certain things including a portion of your utility bills, insurance premiums and home maintenance costs from your taxes.

Some home-business operators steer away from doing this because they’re afraid of an audit. A new IRS rule makes it easier to claim this tax break. Instead of calculating individual expenses, you can claim a standard deduction related to the square footage of the space you use for your business, within limits. Your tax expert can help you figure out if this is a better approach for you.

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Tip #8:

Take every child-related tax deduction you’re entitled to.

If you still have kids living at home, take advantage of the dependent exemption and the child tax credit. Depending on your income, these could be worth approximately $5,000 per year.

Tip #9:

Pay college expenses the tax-smart way.

If you’re planning on paying for your children’s college educations, do it the tax-smart way. Use a state-sponsored 529 college savings plan. Earnings in the plan are completely tax free.

Also, remember to take advantage of the American Opportunity Tax Credit, Hope Scholarship and Lifetime Learning credits, as appropriate. Your tax professional can advise you.

Tip #10:

Use smart tax strategies to pay private school expenses.

If you have kids or grandkids in private school, use a Coverdell Savings Account to save and pay for it. It allows parents and grandparents to use tax-free dollars to save for private-school tuition and other education-related costs for elementary and high-school students. Money put into a Coverdell grows tax-deferred and can be withdrawn tax-free to pay education bills.

Beyond tuition and fees, you can also use the money in a Coverdell to pay for tutoring, books and supplies, uniforms and transportation costs. You can even buy a computer and pay for Internet access, as well. Coverdells come with some limitations, so you should consult with a tax pro before you invest in one.

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