Tax Tips

Tax-Saving Tips for 2008

 

Did you find that you are paying way too much in income tax, for the amount of money that you earned? If you are considered self-employed or a partner in a small professional real estate practice, you can legally take steps to minimize the taxes you pay to the federal government and keep more of what you earn!

  1. Employ Your Child. Your child, under the age of 18, doesn’t pay any federal income taxes on the first $5,350 (in 2008). That dollar amount is exempt from social security and Medicare taxes as well. By paying your child the maximum amount, and you are in the top tax bracket, your tax savings will be $1,895 plus $765 that you don’t have to pay for SS and Medicare.

    Instead of putting the money into a savings account, you can use the money to fund a Roth IRA. The maximum contribution in 2008 is $5000. Even if you contributed money to their account for only a couple of years, think about the dollar amount your child will have when he or she reaches retirement age.

  2. Consider a Health Savings Account. HSAs, or Health Savings Account is a health insurance plan where your contributions are tax-deductible. For 2008, for family coverage, you can contribute $5,800. If you are single, the contribution for 2008 is $2900. Here are some HSA basics:

    * Your real estate practice can make pre-tax contributions on behalf of you and your family members.
    * Money can be withdrawn tax-free from your H S A at any time to pay for qualifying medical expenses.
    * Any money remaining in the account, when you reach age 65 can be withdrawn, with no penalty, to help fund your retirement.

    The benefit of contributing $5,800 to your HSA insurance would be a tax savings of $2,030 (check with your accountant on your tax bracket) plus unused money that can be used later on for your retirement.

  3. Incorporate Your Business. Again, check with your CPA, but incorporating your business and becoming a S-Corp may save you a substantial amount of taxes and allow you to contribute more money (depends upon your income) to your retirement fund, than if you received a W-2 form.

    There are costs to incorporate and additional costs to have your CPA prepare corporate tax returns. Some states charge annual fees. However, meet with your accountant and have him or her prepare a side-by-side comparison and see which structure is best for your practice.

  4. Invest in Real Estate. Being in the business of selling real estate, ask yourself if you really know ALL of the benefits of real estate investing. You write off interest payments, property taxes, repairs, travel to and from the investment, depreciation, etc. Of course, you have to show the income you receive as well. Before investing, check with your accountant and run a “what if” scenario to see if investment or commercial property is right for you.

Check with your CPA or Tax Professional and start right now to derive the biggest benefits for 2008. You could earn substantial, long-term dividends and reduced taxes along the way.

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