June 17th, 2010 | 
Author: There is a huge difference between tax savings and tax evasion. Tax savings use all the legal methods and techniques to save on taxes, while tax evasion simply means cheating on the state. There are various techniques that can facilitate better tax planning to accrue savings on the payable tax. Two most basic principles to save on taxes are to have higher expenses, lower income and using all tax saving instruments (allowed deductions). This makes your income less taxable.
You cannot show lower income or higher expenses just as said. But expenses can be accelerated and income can be deferred. One of the most prominent ways to defer income is investing in retirement plans. Remember your income during retirement times is likely to be lower than that in present. You will be saving on taxes on both the fronts. You may also consider investing in treasury bills and bank certificates of deposit to save on taxes as these will not reflect on your current financial. If you are self-employed. one way of deferring your income is not to raise invoices to your clients in the month of December rather deferring them to January. This way, you can defer your income to the next financial year. As an employee. you may defer your additional income like bonus to the next year. Many people invest in IRA funds. Ensure this towards the beginning of the year so as to accrue maximum benefits.
Managing Expenses
Ways to accelerate expenses are declaring your capital losses, if you have lost some in the stock market vagaries. However, if you have made some money (capital gains) out of it, it is better not to sell these by the end of year. Sell stocks in the next year so that your gains will not be reflected in this year balance sheet. If you are self-employed. you have one more way of jacking up your expenses. Buy out all the supplies needed for the next quarter in the last quarter of the ensuing year. Use credit cards if you don’t have funds to pay for these.
Charity can also be one of the good ways to save on tax. Ensure that you have the receipts for these. Remember that it is better to offer appreciated long-term capital assets to the charity, instead of selling the assets and giving the charity the after-tax proceeds. Last but not the least look out for all the tax deductible credits available. These include credits for the children in family certain educational scholarships, refundable tax credit, etc.
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