Tweet
Do you have any savings tips for someone who also owes sustantial income taxes? It seems likes banks, 401k's and other options are out of the question due to potential for liens. Besides putting money in the mattress is there anything else that can be done?
-
-
Paying taxes trumps any savings or investments. -
Are you looking for a way to save of taxes or a shelter to hide money that is rightfully owed to the government? (one of these would be illegal)...Comment
-
Not looking to do anything illegal.Comment
-
Is it for the current year or a previous year? I'm not sure if there's anything that can be done if it's for a previous year but there is a lot you can do for the current year or future.
Here are some of the things that come to mind:
- Increase your retirement savings to tax-deferred accounts. This includes 401k, traditional IRA if you're in the right income level to take the deduction.
- Start a small business. Business expenses are an above-the-line tax deduction (lowering your taxable income even if you don't itemize deductions). If you have a business you can also open an SEP-IRA and make contributions to that to lower your taxable income (in addition to the 401K and IRA)
- Sell stocks that are doing badly so you can lower your taxable income with the capital loss.
- If you don't usually have enough tax-deductible expenses to itemize, try to plan ahead so that tax-deductible expenses happen in the same year and then you can itemize in that year at least.
- Before you submit your taxes, spend a few hours googling for any new tax laws that might apply to you. I did this and discovered that I could deduct the sales tax on my car purchase ... saved me about $500. I wouldn't have known about it if I hadn't googled.Comment
-
401ks are a good way to shelter income. If self employed, then SEP IRAs are an alternative.
HSAs work same way for health care expenses- if you have income that is easy to shelter with planning.
If the income is already earned (prior year) or the tax owed is for a prior year, then the problem is more complex.
If you have assets you need to shelter, consult an attorney.Comment
-
Thanks for the advice. I contacted an enrolled agent and they are sending me paperwork and gave me a free consultation. Doing more research now on 401K options.Comment
-
This probably doesn't apply to you, but there is a provision of the tax code that allows farmers to average income over 3 years. If you had one really bad year and paid no taxes (with substantial losses), but then a couple of average years where you did pay taxes, the really bad year could average out the average years so the total taxes paid over three years would be less than the sum of each individual year.Comment
-
You can always ask for extra tax witholdings, which will automatically go to the IRS at the end of the year.Comment
Comment