The American Institute of Certified Public Accountants advises taxpayers to take advantage of the opportunities offered by the nation's tax laws to save money. The AICPA published these tips to coincide with last week's celebration of the day American taxpayers stop working for the federal government and start working for themselves, according to the Tax Institute, which annually calculates Tax Freedom Day.
Tom Ochsenschlager, AICPA vice president of taxation, says, "Take Uncle Sam up on his offer! Implement these tax strategies today to save yourself money."
The five easy, tax-saving strategies the AICPA recommends are:
- Stash as much money as you can into a retirement account such as a 401(k) plan or Individual Retirement Account. What you contribute to these accounts won't be taxed until you withdraw it. If you choose to invest in a Roth IRA, the dollars you invest now will be taxed now, but they'll be tax free when you withdraw them.
- Don't make Uncle Sam an interest-free loan! If you received a tax refund this year for the taxes you paid last year, you probably are having too much money withheld from your paycheck. Work with your employer to fine tune your withholding so you are having only as much withheld as you will owe.
- Research the education savings options available to parents and other family members. 529 plans are designed to boost college savings; no deduction is available for the contributions, but the money grows tax free in the plan, and the money paid from these accounts for qualified education expenses is not taxable. A Coverdell Education Savings Account can be used to pay for qualified elementary, secondary and higher education expenses; the contributions to Coverdell accounts aren't deductible, but the contributions grow tax free. Education costs can be offset by eligible taxpayers by taking either the Hope Scholarship Credit or Lifetime Learning Credit. Tax deductions are available to qualified taxpayers for up to $2,500 of interest paid on student loans.
- Go green and save money. Buying an eligible hybrid or other alternative-fuel car or truck may qualify you for a tax credit.
- Make a gift to your kids. You and your spouse can each contribute up to $12,000 to each of your children without triggering the gift tax law. Children can report up to $1,800 of unearned income, such as interest from a $12,000 investment in a CD, at their marginal tax rate which is likely to be less than yours.