Who needs the government to give them a tax break? There are plenty of ways you can reduce your own tax burden (and next year's mid-April panic attacks). Here are five of the most common tax-planning tricks:
Fund your IRA now. Many people wait until the last possible day to make their IRA contributions. But if you have the cash, invest the money now and gain 11 months of tax-free growth -- especially when so many stocks are at bargain-basement prices. The extra months of compounding can make a big difference over the long haul.
Don't use the IRS as your savings account. If you received a large tax refund, adjust your withholding allowances so you end up receiving a small refund -- or paying a small amount. This way, you can earn interest on your increased take-home pay instead of giving the government a free loan. Your payroll department can help you figure out how many exemptions to claim on your W-4.
For the self-employed, use past years' earnings to estimate how much you'll owe next year, and divide that amount into quarterly payments.
Pay yourself instead of the IRS. While preparing your 2000 taxes, you may have discovered too late that you've moved into a higher tax bracket. You can keep more money in your pocket by increasing contributions to 401(k)s, 403(b)s and IRAs.
Make your kids pay some of your taxes. If you'll have an estate of over $675,000, now's the time to consider gifts of $10,000 to children or grandchildren. The money won't be subject to estate or gift taxes, and your kids will pay capital gains the money earns at their tax rates.
Don't get bitten by stock options. Even if your company takes a big bite of taxes when you exercise stock options, the increased income can push you into a new bracket -- and you could be faced with a nasty tax bill and penalties for underpayment. Plan ahead, with a tax accountant's assistance if necessary, to see if you must make estimated quarterly payments.
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Use the tax guide to set your tax strategy to pay less taxes.
