10 Ways to Get More Back From Uncle Sam

by Vincent King · 0 comments

After sweating bullets at work and muddling through another day, you come home to a screaming brawl between your two teenagers. Your head is about to explode, but it’s April 12th and your taxes are due in a couple of days.

You’ve been putting it off because there’s nothing in it for you. It’s depressing to think of how much Uncle Sam rips from your wallet each year — but procrastinating doesn’t bring your dollars back.

What does help is to make sure you’re not giving him more than he should get. Here are 10 ways to get more back from Uncle Sam.

1. Only withhold what you need to

Keep more of your money throughout the year by making sure you’re only withholding what you need to withhold, and no more. Getting a refund at the end of the year is awesome, but by withholding more than you need to, you’re giving a free loan to the government.

2. Invest in a Roth IRA

Unlike regular retirement funds, this money is taxable on the way in, but not on the way out. Due to tax hikes down the road, paying taxes now is probably better than paying taxes later.

3. Invest in your health

Take on less taxable income by contributing to your company’s flex fund. The cash will be contributed before taxes are taken out, helping you to avoid taxes on services you need anyway. Note that you can put in a maximum of $2,500.

4. Donate stocks

Instead of giving your cash to a charitable fund, give appreciated stocks and mutual funds you’ve had for more than a year. Your credit will equal the current market value — not what you paid for it. And you won’t have to pay taxes on the profits. (But, don’t give stocks that lost money. Sell those.)

5. Take on the 529

Instead of tucking away after-tax dollars in a savings account for your child’s college fund, invest in your state’s 529 college saving plan. You’ll maintain full control over the money — unlike with a custodial account that surrenders control to your child at 18 or 21 (where there will be a kiddie tax to deal with, too!). If your child decides not to go to college, you can assign the sum to another child, or take it back.

6. Don’t buy mutual funds before the dividends are paid out

Wait to buy until after the dividends are paid out, thereby avoiding the tax bill and getting them at a lower price.

7. Avoid the “kiddie tax”

Don’t let Uncle Sam take too big of a bite out of your little one’s earnings. The “kiddie tax” is a parent-level tax on your children’s income, and is now effective until age 19 (or 24, if they’re a full-time student). Lessen the impact by putting your child’s investments into tax-free municipal bonds or growth stocks that won’t be sold until they’ve aged out of the requirements.

8. Make sure your business is properly categorized

You can save thousands in taxes by taking on the right form. Should you be a sole proprietor, LLC, S-Corp, or C-Corp? Talk to your accountant to make sure you’re forming the most lucrative business setup.

9. Get a separate bank account for your side business

If the IRS determines your “business” is really just a hobby, you still have to report income, but you can’t claim expenses or losses if you don’t make enough money. Avoid their hobby-loss rule by running your hobby as a true business with its own bank account, so you can get credit for everything you’re doing.

10. Calculate your estimated quarterlies

If your tax bill will be 100% of your earnings for 2012 (110% if your income was more than $150,000), then don’t sweat paying estimated quarterlies. If you receive significant income, however, then avoid a penalty and pay your estimated quarterly tax.

You work hard for your money. You owe it to your wallet, your checking account, and your peace of mind to keep as much of it as you can.

What are your best quick and easy tax tips?

Money Saving Tip: An incredibly effective way to save more is to reduce your monthly Internet and TV costs. Click here for the current Verizon FiOS promotion codes and promos to see if you can save more money every month from now on.

{ read the comments below or add one }

Leave a Comment