Feb. 23 Putting Off Working On Your Tax Return May Cost
You, Financial Planner Warns: I thought this was kind of more aimed at
Americans, but it’s still about taxes and could be applied to Canadians. Ginny
Grimsley sent me this article about saving money on taxes:
3 Tips for Keeping More of Your Own Money
Nearly 150 million Americans will file federal income tax
returns this year and, unfortunately, many will be shelling out much more of
their hard-earned money than necessary, says veteran financial expert Jeff
Gorton.
“With the ridiculous complexity of our tax code, I can
understand how the average person might want to put off doing their homework,
but that’ll cost you,” says Gorton, a veteran Certified Public Accountant and
Certified Financial Planner™, and head of Gorton Financial Group (www.gortonfinancialgroup.com).
“When you think about all you do to earn your money, and the
lengths we’ll go to save a few bucks, it doesn’t make sense to not do all we
can to prepare for the inevitable – our compulsory contribution to Uncle Sam’s
bank account.”
There is nothing unpatriotic about taking advantage of legal
measures to reduce your tax bill, Gorton says. Most Americans, however, don’t
understand the basics of how to minimize the tax burden, he says.
“If you wait until the last minute to do your taxes, you’re
sure to miss out on savings,” says Gorton, who offers some basic and more
advanced tax-saving options.
• Credits: Tax credits are usually subtracted
dollar for dollar from the actual tax liability and may be utilized when filing
for 2013. They include the Child Tax Credit, which allows up to $1,000 for
children younger than 17; the American Opportunity Credit, featuring up to
$2,500 in tax savings per eligible student for tuition costs for four years of
post-high-school education; and the Energy-Efficient Home Improvement Tax
Credit, which grants qualifying taxpayers 10 percent of the cost of certain
energy-efficient building materials — up to a $500 lifetime credit. The Child
and Dependent Care Credit, for those who have to pay someone to care for a
child younger than 13, or another dependent, offers up to $3,000 for one
qualifying individual, or up to $6,000 for two or more qualifying individuals.
• Deductions: Like tax credits, deductions have
phase-out limits, so you may want to consult with a professional. Deductions
are subtracted from your income before your taxes are calculated, which may
reduce the amount of money on which you are taxed and, by extension, your
eventual tax liability. Some examples include contributions made to qualifying
charitable organizations. And, you may be able to write off out-of-pocket costs
incurred while doing work for a charity. Others may include amounts set aside
for retirement through a qualified retirement plan, such as an Individual
Retirement Account; medical expenses exceeding 10 percent of your adjusted
gross income are now deductible – expenses exceeding 7.5 percent are still deductible
for those older than age 65; and, potentially, mortgage interest paid on a loan
secured for your primary residence.
• Tax-favored investing: This involves both
tax-exempt investments and tax-deferred investments. Tax-exempt investments,
which include such vehicles as municipal bonds and certain money market funds,
offer a way to grow your money that’s exempt from federal taxes. Municipal
bonds are free of federal income tax and may be free of state and local income
taxes for investors who live in the area where the bond was issued.
Tax-deferred investments, on which taxes are postponed until you withdraw your
money, include qualified retirement plans, such as traditional IRAs and
employer-sponsored plans, as well as insurance products such as annuities and,
sometimes, life insurance.
About Jeff Gorton, CPA, CFP®
Jeff Gorton is a Certified Public Accountant and a Certified
Financial Planner™ specializing in individual tax and retirement planning. He
is also an Investment Advisor Representative under Alphastar Capital
Management, an SEC Registered Investment
Advisor, and has a life and health insurance license. Gorton works with
individuals and their families to create and protect their financial legacies.
He specializes in working with retirees in the areas of tax planning, benefits,
retirement planning, estate planning and safe money techniques. He received his
BBA in Accounting from the University of
Oklahoma. Gorton previously worked for 10 years as the Chief Financial Officer
for a large retail organization, overseeing their accounting, benefits and
401(k) retirement plans.
How to Reduce the Biggest Expense of Your Life: Taxes:
I have to say it’s kind of for Americans, but you may still learn
something. Ginny Grimsley sent me this
article too:
Financial Engineer Discusses Ways to Troubleshoot Unnecessary
Financial Burdens
Taxes account for the most expensive burden you’ll
experience in your lifetime, says engineer-turned-independent financial
planning coach Rao K. Garuda.
In addition to federal, state, city and death taxes, there
are 59 other varieties. Relatively few taxes, however, account for the bulk of
the burden on citizens, says Garuda, whose clients include retirees, people
planning for retirement, physicians, business owners and other professionals.
He thinks his fellow Americans deserve a shot at keeping
more of their money.
“When I came to the United
States, I had less than $10 in my pocket,
but I had an excellent education as an engineer. When I married a physician, I
realized how expensive it is to make a good living here,” says Garuda, (www.aca-incorp.com), who
quickly applied his analytical engineering mind to understanding the
complicated tax system.
“Since this country has given me so much, I wanted to repay
my fellow Americans with strategies for keeping more of their own money.”
Garuda identifies some of the most expensive and common tax
hurdles affecting Americans and offers advice on troubleshooting our tax
system.
• Problem: The IRA tax: great on the front end,
terrible down the road.
Solution: An IRA is tax-deferred, which means it will accumulate value over time. But when you withdraw from it, you will be heavily penalized with high taxes. That’s why you should convert this asset to a Roth IRA, which allows your money to grow tax-free. Since the money put in was already taxed you don’t have to pay any taxes when you take it out, and, overall, you’ll save a significant amount of money.
Solution: An IRA is tax-deferred, which means it will accumulate value over time. But when you withdraw from it, you will be heavily penalized with high taxes. That’s why you should convert this asset to a Roth IRA, which allows your money to grow tax-free. Since the money put in was already taxed you don’t have to pay any taxes when you take it out, and, overall, you’ll save a significant amount of money.
• Problem: Too many people don’t take advantage
of creating tax-free income via insurance products.
Solution: From a financial perspective, retirees and professional planners run into a significant issue: seniors, blessed with good health, who outlive their money. But with certain insurance products, retirees can create tax-free income while covering the later years of retirement – and protect their wealth if they become severely ill. There are certain insurance products tied to the stock market that can help people accumulate assets in the long run. Many of these products offer a tremendous upside for potential without the downside of increased risk.
Solution: From a financial perspective, retirees and professional planners run into a significant issue: seniors, blessed with good health, who outlive their money. But with certain insurance products, retirees can create tax-free income while covering the later years of retirement – and protect their wealth if they become severely ill. There are certain insurance products tied to the stock market that can help people accumulate assets in the long run. Many of these products offer a tremendous upside for potential without the downside of increased risk.
• Problem: Missed opportunities – people who
don’t take advantage of free money in a 401k.
Solution: Perhaps the company you work for is, like many others, bureaucratic to the point of being impractical. Your employer may not have done the best job communicating details about benefits such as matching 401k contributions, or you may not have taken the time to learn them. Now’s the time; this is free money! If your employer is offering a 50 percent match on your first 6 percent of contributions to the 401k, you should be contributing at least 6 percent. Educate yourself on your company’s plan so you can take full advantage.
Solution: Perhaps the company you work for is, like many others, bureaucratic to the point of being impractical. Your employer may not have done the best job communicating details about benefits such as matching 401k contributions, or you may not have taken the time to learn them. Now’s the time; this is free money! If your employer is offering a 50 percent match on your first 6 percent of contributions to the 401k, you should be contributing at least 6 percent. Educate yourself on your company’s plan so you can take full advantage.
About Rao K. Garuda
Rao K. Garuda, CLU, ChFC,
is president and CEO of Associated Concepts Agency, Inc. – “The Missing Piece”
of financial planning -- founded in 1978, and a popular speaker at seminars and
conferences for financial industry professionals. He came to the United
States from India
35 years ago with a degree in engineering and, after marrying a physician,
realized he had to learn how to reduce the couple’s taxes. Disappointed in the
financial advice he received from professionals, he went to business school and
developed expertise in tax reduction, and protecting money from stock market
losses. Rao is a founding member of First Financial Resources, a national
organization with over 75 partners in the USA;
a life member of the Million Dollar Round Table (MDRT), and a life member of
MDRT’s Top of the Table for 21 consecutive years.
