Tax Saving Strategies

  • Lower your taxable income by shifting income to other family members. However, watch out for the kiddie tax.

  • Calculate the value of the tax benefits to see who should claim education deductions and/or credits—you or your child.

  • Consider your plans for the near future. How will marriage, divorce, a new child, retirement, or other events affect your year-end tax planning?

  • Take maximum advantage of your employer’s Section 125 flexible spending account, 401(k) plan, health savings account (HSA), and health reimbursement arrangement (HRA).

  • For tax purposes, a deductible purchase is considered “paid” when charged. If you need the deductions this year but do not have the cash, consider charging contributions, medical expenses, business expenses, and some state tax payments. Just remember to pay them off quickly to avoid increasing debt.

  • Under kiddie tax rules, children’s unearned income over $2,200 will be taxed at the rates that apply to trusts and estates, not the parents’ top rate as in years past, until the children reach age 18 (age 19 if the child does not provide more than one half his/her own support or age 24 for full-time students) in 2020.

  • To avoid being taxed twice, count reinvested dividends as part of your tax basis when you sell stock.

  • Exercising an incentive stock option (ISO) creates an AMT adjustment, but it produces no corresponding cash with which to pay any resulting AMT. Selling the stock to generate cash may not solve the problem if the stock has dropped in value or is sold prior to having met ISO time requirements.