Tax season causing you to lose sleep? Don’t worry - we know how it feels, which is why we’ve put together this handy guide with 5 top saving tips for 2017. From starting a college saving fund to saving for retirement, here are some handy guidelines to keep in mind.
You get tax exemptions for starting a business
New entrepreneurs are rightly protected by US law, and that includes a myriad tax laws that protect your interests. If you’ve started a new business or are thinking about taking the plunge, consult with a tax practitioner, and better yet, put them on a retainer. An expert will save you thousands of dollars every year, helping you to document and record business-related expenses like your office, rent, internet and if you work from home, even your rent or mortgage payment. Just remember to keep all your invoices and slips handy.
You don’t get taxed on college savings
If you’ve got kids and you want to send them to college in the future, open up a 529 college saving plan.
A 529 exists in almost every state in America and it allows you to control your money tax-free. As the money grows, you keep the surplus, and you’ve got the freedom to move money across different 529 plans. That means if one of your children decides to skip college, the money can be allocated to another child, or kept for the parents.
Save for retirement
A Roth IRA can be saving grace. Designed for retirement, money can nonetheless be withdrawn from the plan tax-free.
It also gives you the option of reducing the amount of taxable income you’re declaring. Money kept in a Roth IRA is a legitimate long-term saving, and the Internal Revenue Service won’t have any grounds for taxing it.
A Roth IRA is different to a traditional IRA. The former is designed for retirement, while the latter is more for the here and now. If you’d like to see the differences, check out the official site here.
Bear in mind, there are some limits in place. If you’re under 50, you can’t contribute more than $5,500 in a year, and if you’re over 50, that figure is $6,500.
One of the reasons to get a Roth IRA in lieu of a normal IRA is a sticky law that applies to the latter. If you’re older than 70-and-a-half, you’re required to withdraw a minimum sum from your IRA every year. Don’t do that? The Revenue Service takes a 50% cut, a staggering penalty.
Per the IRS:
“Your required minimum distribution is the minimum amount you must withdraw from your account each year. You generally have to start taking withdrawals from your IRA, SEP IRA, SIMPLE IRA, or retirement plan account when you reach age 70½. Roth IRAs do not require withdrawals until after the death of the owner.”
By federal law, you can give money away tax-free. And it doesn’t have to be a charity either. The IRS sets a limit of $14,000 per tax-free “gift”, meaning you can send $14,000 denominations to your kids without having the IRS on your back. Even better is a method called “gift splitting”, where parents are legally allowed to come together and double that figure to a $28,000 sum.
You can shift thousands (or millions) to family this way, ensuring it won’t be left in your estate to be taxed. For 2017, the tax exemption limit is a whopping $5.49 million per person, up a few thousands from the year before.
Just remember that if the return is filed by your spouse, you need to have your consent signified on the return too.