Young families everywhere are finding new ways to save on their taxes. There are several different areas where they are saving the most. The first area is at work.
The first thing to look out for is if you received a big tax refund this year. If you did, it probably means that too much tax is getting taken out of your paycheck. To fix this, filing a new W-4 form with your employer will make sure that you will receive more money that you earned. You should also be aware of medical reimbursement accounts, also called flex plans. These plans will help you avoid income and Social Security tax on your money and can help you save 20% - 35%. These plans allow you to switch a part of your salary to a different account which you can use to pay medical bills. Lastly, at work switching to a child-care reimbursement account can save you thousands of dollars because you get to use pre-tax dollars, which avoids both income and Social Security taxes.
This leads into the next area where young families can save on their taxes: Children.
Having a child born into the family or even adopted is a good thing for your tax return. An added dependency exemption will help you save money on your taxable income. You won’t have to wait until you file your return to see the benefits either. By simply adding at least one extra withholding allowance to the W-4 form filed with your employer, you will immediately increase your take-home pay. If you have an unincorporated business, hiring your own children can benefit you immensely. You will be able to deduct what you pay them which shifts income from your tax bracket to theirs. Since wages are earned income, and if the child is under age 18, he or she will not have to pay Social Security tax on the earnings. When saving money for college, putting it away in a custodial account can save on taxes. However, it is important to remember that if you do not want your child to have control of the account when he or she turns 18 or 21, you must use a state sponsored 529 college savings plan. This plan can make earnings completely tax free and can also allow you to have more control over the
Retirement is another area where young families can save on their taxes.
Although retirement may seem to be a long ways away, and if you are concerned about high taxes in the future, shifting some or all of your retirement money to a Roth 401(k) will save you money because you do not get a tax break when your money goes into the Roth account. Also, when your money is coming out of the Roth account, it will be tax-free, whereas cash coming out of a regular 401(k) will be taxed in your top bracket. If you have your own business there are multiple retirement accounts you should use, including Keogh plans, Simplified Employee Pensions (or SEPs), and individual 401(k)s.
Last but certainly not least, a very important way to save on taxes is with your own home.
When saving up for your first home, a great tool to use is a Roth IRA. All contributions in a Roth can come out any time you want, tax and penalty free. After the account has been opened for five years, up to $10,000 can also be taken out tax and penalty free.
Source: Daily Finance
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