Opt For Life Insurance Plans
Life insurance policies enjoy tax waivers on both premium payments and the amount disbursed on maturity, respectively.
Income Tax Act contains provisions under Section 80C for premium payments, and Section 10 for the sum assured received on maturity or premature demise of the insured, whichever is earlier.
Nonetheless, the tax benefits of up to 1.5 Lakh spent on annual premium can be claimed under Section 80C, provided it is less than 10% of the total sum assured, if the policy is taken after 1st Aril 2012.
In case the policy was availed before 1st April 2012, claims under Section 80C can be made if the total premium payments do not exceed 20% of the sum assured.
Sum assured realised on such life insurance policies is also exempt from any tax calculations under Section 10, provided it conforms to the above-stated rules.
Purchase or renewal of life insurance cover, along with annuity payments on such policies through yearly salary is eligible for tax waivers of up to 1.5 Lakh under Section 80CCC as well.
Under section 80CCD, the only certain pension funds under section 23AAB are eligible for waivers of up to 1.5 Lakh.
Also, if individuals decide upon investing in Unit Linked Insurance Plans , the insurance section enjoys tax waivers, as stated above.
The portion of investment channelled to the stock market also does not attract any long-term capital gains tax.
Planning For Retirement Set Up And Fund A Donor
Establishing a donor-advised fund before you retire is an easy, tax-efficient way to make charitable giving a priority in retirement. And theres potential for a more immediate benefit as well: substantially offsetting your current taxes.
If your tax bracket is higher now than what you expect it to be in the future, consider frontloading your charitable giving by making a large contribution now, rather than smaller gifts in retirement. Not only will you gain the possibility of tax savings in the present year but youll also have charitable contributions set aside to recommend as future grants, allowing you to continue supporting charities generously on a fixed incomeat a point in your life when you have more time to focus on philanthropy.
This is a hypothetical example for illustrative purposes only. This chart assumes the donor contributes a cash gift. State and local taxes, the federal alternative minimum-tax, and limitations to itemized deductions applicable to taxpayers in higher-income brackets are not taken into account. Please consult your tax advisor regarding your specific legal and tax situation. Information herein is not legal or tax advice.
Relief Under Section 89
You are allowed tax relief under Section 89, when you have received a portion of your salary in arrears or in advance, or have received a family pension in arrears.
Calculate the Tax Relief Yourself
a. Calculate the tax payable on the total income, including additional salary in the year it is received.
b. Calculate the tax payable on the total income, excluding additional salary in the year it is received
c. Calculate the difference between Step 1 and Step 2
d. Calculate the tax payable on the total income of the year to which the arrears relate, excluding arrears
e. Calculate the tax payable on the total income of the year to which the arrears relate, including arrears
f. Calculate the difference between Step 4 and Step 5
g. The excess amount at Step 3 over Step 6 is the tax relief that shall be allowed.
Note that if the amount at Step 6 is more than the amount at Step 3, no relief shall be allowed.
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What Is The Capital Gains Tax
For example;;if someone bought shares for $10,000 and sold them for $15,000, the total capital gain amount would be $5000, and they would pay the marginal tax rate on the $5,000 capital gain. The taxable capital gain would be $2,500 which will be taxed based on the individuals tax bracket.
If this is your first time dealing with capital gains and are feeling overwhelmed, we have tax experts to help you.
Have The County Reassess Your Property Taxes
You may be able to reduce your actual property taxes. Thats a tax saving, too, especially if your property taxes exceed or take up the majority of the $10,000 of SALT deductions you can claim.
Even though property values are rising, many home values throughout the United States still havent recovered from the 2007 to 2009 economic meltdown. Your home may be worth $350,000, but youre paying property taxes on it as if its worth $450,000. Its time to call your county property assessor. You may need to have your property reassessed, and by doing so, you might be able to lower your property taxes. In effect, this could potentially lower your income taxes because it frees up part of your SALT deductions.
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Get Private Health Insurance
You should only do this if it makes sense. If you dont carry private hospital insurance, but youre single and make more than 90,000 dollars a year, or youre a family and make more than 180,000 dollars per year, you will pay a minimum one percent Medicare Levy Surcharge. The Medicare Levy Surcharge is also collected on top of a mandatory two percent Medicare Levy that most taxpayers have to pay anyway.
Basic, private healthcare plans can cost less than the one percent of Levy Surcharge on your gross income, which would be less than the Medicare Levy youd pay without insurance. For some people, private healthcare might be worth it to lower your taxes. Depending on your needs and medical history, it might also be worth it for the often shorter wait times youll get with private healthcare.
What Does Taxable Income Mean
Your taxable income is the amount of money you earned that your tax agency uses to calculate how much you owe in taxes. Its your gross income minus any income adjustments.
Whats your gross income? Its your income from all taxable sources. It includes wages/salary, tips, bonuses, and investment income . It also includes unearned income like government pensions, disability payments, gambling winnings, and cancelled debts.
People often assume gross income refers to only their wages because their wage earnings make up the majority of their income . But this isnt the case. Gross income includes;every penny;thats taxable.
If you shovel your neighbours steps for $20, the taxman considers that income. Its even income if you;trade;goods or services. Many people fail to report these kinds of income, but they count.
Other kinds of income are nontaxable, however. These are not part of your gross income, and therefore are not part of your taxable income. They include
Income you contribute to retirement accounts.
If you arent sure if money you earned is taxable or nontaxable, speak with a tax advisor who knows your region. Different agencies define taxable and nontaxable income differently. For example, the Canada Revenue Agency does not consider lottery winnings taxable, but the Internal Revenue Service in the United States does.
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Transfer Assets To Your Spouse
You won’t be charged capital gains tax if you transfer assets to your spouse or civil partner – and a;lower-earning spouse may pay more favourable income tax rates.
So, it may be worth;transferring;savings and investments to your husband, wife or civil partner if they pay a lower rate of tax than you do.
Pay Your Property Tax Bill Early
If you have a property tax bill due in January and you itemize, paying it before December 31 will allow you to deduct the payment from your taxable income on your 2016 tax return.
- Caution: Prepaying your property taxes could trigger the alternative minimum tax, designed to prevent wealthy people from using so many legal deductions to avoid taxes. Several popular write-offs, including property taxes, must be added back when calculating AMT liability. Talk to your tax preparer or use tax software to determine whether youre vulnerable to the AMT.
Further complication: Tax reform plans under consideration aim to lower rates and simultaneously reduce deductions and credits. Under the House GOP tax plan, deductions for a variety of local taxes, including real estate taxes, would be scrapped. Prepaying your tax bill and writing it off this year would sure beat not being able to write it off at all.
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The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.
Feeling Charitable How To Pay Less Tax With Donations
Every donation you make to a registered charity greater than two dollars is considered tax-deductible. After donating, the organisation should send you a receipt. Make sure to file that away for tax season. Once tax time rolls around, add up your charitable receipts and enter that into the charity donations section in your tax return. But remember that donations do not come back via a tax refund. Instead, the amount of the monetary gift is reduced from your total taxable income, meaning youll get back a percentage of the donation.
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How To Reduce Your Capital Gains Tax
Though the inclusion rate for the capital gains tax is the same for everyone, there are some ways to lower the amount of tax you pay on your capital gains.
- Choose the right time to sell investments.
- Defer the capital gain if you do not expect to receive the money from the sale right away.
- Donate assets to a registered charity or private foundation.
- Those who own a small business, farm, or fishing property can use the Lifetime Capital Gains Exemption .
Minimise Your Taxes With A Mortgage Offset Account
If you have a home loan, a mortgage offset account lets you offset your non-deductible interest on the home loan with interest on the standard, taxable earnings of money in a deposit. With this arrangement, taxpayers can create a savings account with their lender. But instead of paying interest on the entire amount of the home loan, taxpayers are charged interest on the loan, minus the money in the savings account.
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Change The Character Of Your Income
You can adjust the assets in your portfolio to change the way your income is taxed. If you own a business, changing your business structure can be a very effective tax reduction strategy for high-income earners.
Here are some options:
Convert your traditional, SEP, or SIMPLE IRA to a Roth. After age 59-½ , Roth distributions are generally tax-free. In addition, they arent considered investment income, so they wont increase your MAGI for the 3.8% Medicare surtax. Youll need to analyze your federal tax brackets, but Roth conversions can be a powerful tool to reduce the taxation of your future income.
Buy tax-exempt bonds. Interest income from tax-exempt bonds is excluded from Medicare surtax calculations and not subject to federal income tax. Even better, municipal bond interest on bonds purchased in your state of residence are state and federal income tax free.
Restructure your business entity. Incorporating your business lets you choose the tax structure that works best for you financially. A C-corp, for example, has a lower top tax rate than an S-corp or sole proprietorship. In addition, earnings from a pass-through entity may also qualify for a new deduction of up to 20% of business income. Switching to a sole proprietorship lets you hire your minor children without having to withhold or match payroll taxes. Childrens earnings are also taxed at a lower rate.
Think Beyond Cash As A Donation
Instead of writing checks, look at your portfolio with an eye toward donating long-term appreciated securities , real estate, private company stock and other potential investments.
Why? Capital gains taxes are eliminated when you contribute long-term appreciated assets directly to a charity, like Fidelity Charitable, instead of selling the assets yourself and donating the after-tax proceeds. When you assume 20% for federal long-term capital gains taxes, plus a 3.8% Medicare surtax, this leads to a potential increase of 23.8% of both your tax deduction and your charitable contribution.
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Feed The Ira Lower Your Taxes
One reason that financial advisers consistently recommend contributions to a retirement plan as the best way to reduce a tax bill is that most of those contributionsdepending on the type of planare essentially tax write-offs that dont require itemization.
Because the money you contribute to a traditional IRA is a pre-tax contribution, it lowers your total taxable income. This means you will owe less in income taxes, regardless of whether you itemize or take the standard deduction. And because in recent years contributions made until the tax deadline have been applied to the return for the previous year, they have been popular among people who scramble to soften the blow of a large tax bill.
Its great advice, said Thompson, who teaches continuing education courses for tax practitioners andas an enrolled agenthas earned the privilege to represent taxpayers before the Internal Revenue Service.
Thompson, however, is quick to offer a reminder that traditional IRAs are tax-deferrednot tax-exempt. Deferred taxes eventually must be paid, presumably at retirement. Alternatively, there are non-traditional IRAs, such as the Roth IRA, that dont soften the tax bill today but could really lighten the burden in your golden years.
Create A Larger Current Year Deduction By Combining Cash And Securities
While donating appreciated securities typically eliminates long-term capital gains exposure, you are limited to 30% of your adjusted gross income for deducting contributions of long-term appreciated securities. This is sufficient for most people, but there are some years when you might benefit from a larger current year deduction. In those select situations, you may choose to supplement a charitable gift of securities with a charitable contribution of cash. This strategic combination of giving is an opportunity to reduce your taxable income.
Fidelity Investments customers can use the Fidelity Charitable Appreciated Securities Tool when making a contribution to help find the most highly appreciated securities from your portfolio.
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Landlord’s Replacement Of Domestic Items
Landlords can;claim tax relief on money spent to replace ‘domestic items’ in their furnished;rental properties.
The types of items you can claim relief on include beds, carpets, crockery or cutlery, sofas, curtains, fridges and other white goods.
But this only applies to items being replaced – not those bought for a property for the first time. You can also only claim the amount for a like-for-like replacement.
Tax Efficient Disposal Of A Second Property
The upsurge in ownership of investment properties has resulted in many people facing a Capital Gains Tax bill on the eventual disposal of the property, which applies even if the property is gifted. However, there are various ways in which the tax bill can be reduced so its important to get planning advice at an early stage.
A recent change to be mindful of is that if you sell a UK residential property and a chargeable gain arises youll need to submit a CGT return to HMRC to report any gain, and pay the tax within 30 days of completion.
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Shift Income To Your Family Members To Lower The Overall Family Tax Burden
You may also be able to minimize your federal income taxes by shifting income to family members who are in a lower tax bracket. For example, if you own stock that produces dividend income, one option might be to gift the stock to your children. After you’ve made the gift, the dividends will represent income to them rather than to you. This may lower your family’s overall tax burden. Keep in mind that you can make a tax-free gift of up to $14,000 per year per recipient without incurring federal gift tax.
However, look out for the kiddie tax rules. Under these rules, for children under age 18, or under age 19 who don’t earn more than one-half of their financial support, any unearned income over $2,000 in 2013 is taxed at the parent’s marginal tax rate. Also, be sure to check the laws of your state before giving securities to minors.
Other ways of shifting income include hiring a family member for the family business and creating a family limited partnership. Investigate all of your options carefully before making a decision.
Tax Saving From Home Loan
Get Deductions u/s: 80C, 24, 80EE & 80EEA
Use your home loan efficiently to save more tax. There are five ways to get an income tax deduction on your home loan.
Deduction under section 80EEA is in addition to the Rs. 2 Lakh limit allowed under section 24.;
So if you can meet the conditions of both sections 24 and 80EEA then you can claim Rs. 2 Lakh + Rs. 1.5 Lakh = Total Rs. 3.5 Lakh in the deduction.
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