10 Tips For Lowering Your Taxes

This list of ten tips to reduce taxes was published nearly a year ago, but they’re still relevant, and we thought now would be a good time to share them before Kiplinger releases its new “10 Ways” list later this month. Among the tips: make sure you load up your retirement accounts and flexible spending accounts, and remember that the government gives you a 2 ½ month grace period on reimbursing yourself from an over-funded flex account.

Another tip is to donate appreciated assets instead of cash to a charity.

Let’s say you have $1,000 worth of mutual fund shares that you bought more than a year ago for $500. If you sold those shares, you’d owe $75 in tax on the profit even at the special 15% capital gains rate. But if you donate those shares, the charity gets the full $1,000 (it doesn’t have to pay tax on the profit when it sells), you avoid that $75 tax bill, and you still get to deduct the full 1,000 bucks. It’s a win, win, win situation. (This only works when the assets are held in a taxable account, not an IRA or other retirement account.)

What if you don’t want to part with your investment? Give it away, anyway, and use the cash you would have donated to re-invest. The maneuver is perfectly legal and simply wipes out the tax bill that’s built up so far.

And no, it doesn’t work if the investment has lost money—”You would be better off selling the stock, making a tax-deductible contribution of $400 in cash to the charity and claiming a $600 capital loss.”

“Ten Ways to Lower Your Tax Bill” [Kiplinger]
(Photo: Getty)

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  1. ceejeemcbeegee is not here says:

    Or, you could become a business owner and reduce your tax liability to 15%-33%?

  2. saturn says:

    The IRS allows flexible spending account administrators to allow you to have a grace period in the next year. Check with your account administrator. Mine does not allow the grace period.

  3. MyCokesBiggerThanYours says:

    Or you could stop voting for Democrats and Republicans.

  4. BStu says:

    What’s wrong with paying the $75 and keeping the $425 profit? I mean, I get if you’re going to give $400 to charity anyway, why not do this. That’s sensible. But the obsessiveness about avoid tax bills puzzles me. Who do you think is picking up your trash, putting out fires, maintaining roads, providing national defense, etc, etc?

  5. gticlutchburn says:

    @BStu: hmmm… could it be the 25% of my paycheck the government keeps every 2 weeks?

  6. hotrodmetal says:

    Taxes are fine. The problem is the lack of true services that are given in return. Most people don’t realize how much they are taxed.

    Taxes on your income. Sales tax on purchases. Property tax. Death Tax. Don’t forget all of the Local state/county/municipal taxes.

    These are the very reasons that most people avoid paying taxes that are unreasonable.

    If taxes were truly equitable, our military would be paid for what they are worth to us.

    @BStu:

  7. krom says:

    The article is from earlier this year, i.e. for 2006 taxes. Some of that, like the hybrid tax credit, doesn’t apply to 2007 I believe.

  8. Prosumerist says:

    Wow, imagine having to pay only %15 tax for doing absolutely nothing that contributes to humankind (unless you consider ‘investing’ a positive contribution, at least indirectly…)