TAX NEWS - 2010

How Can You Pay Less Income Tax?

When considering your financial affairs a main aim is to reduce the amount you pay in taxes. There are two ways in which to do this, firstly you can reduce your income and secondly you can increase your deductions.

Reducing Income – Your AGI (adjusted gross income) is determined by subtracting any adjustments to your income from your combined income from all sources. Since higher income means higher AGI and a higher tax bill, the goal, of course, is to have your AGI (adjusted gross income) as low as possible. One excellent way to reduce your income is to make contributions to a retirement plan through your employer. This reduces your wages and therefore your tax liability. A complete list of possible adjustments is available on the website for your country's tax office.

Increase Your Tax Deductions – Your AGI (adjusted gross income) is further reduced by deductions and exemptions and this total is your taxable income. Typically, you are eligible for the standard deduction. But many people could itemize their deductions. The standard deduction and personal exemption relies upon filing status and number of dependents. If you marry or have more children, you raise your standard deduction and personal exemptions. If you want to itemize your deductions, you can count things like your state and local taxes, property taxes, gifts to charity, health care costs, tax prep fees, expenses incurred from investments, interest paid on your mortgage, and expenses for your job. There are other deductions you can take. Again, check the IRS website for a complete list. If you're not sure which way to go, calculate your itemized deductions and compare the total to what you could write off if you took the standard deductions.

Along with these methods for saving on income tax, you will find there are a number of lesser known techniques. These techniques will depend upon which country you reside and when added together can really give you some serious savings. There are a number of tax credits you can use to your benefit along with investment funds, a thorough search online will enlighten you to those methods available to you in your country. However it is worth noting that these methods can be rather confusing and therefore it is advised if you want to take advantage of them you should hire somebody who specializes in tax to do it for you.

Making changes in how you pay your taxes today acting on the expert advice of a tax professional can result in dividends for the remainder of your life. While tax free income is an unattainable dream, your professional can help you pay considerably less taxes now.