Sandra Block for Kiplinger writes: If you managed to claim every possible tax break that you deserved when you filed your return this spring, pat yourself on the back. But don't stop there. Those tax-filing maneuvers are certainly valuable, but you may be able to rack up even bigger savings through thoughtful tax planning all year round. The following ideas could really pay off in the months ahead.
Give yourself a raise. If you got a big tax refund this year, it meant that you're having too much tax taken out of your paycheck every payday. So far this year, the average refund is nearly $2,800. Filing a new W-4 form with your employer (talk to your payroll office) will insure that you get more of your money when you earn it. If you're just average, you deserve about $225 a month extra. Try our easy withholding calculator now to see if you deserve more allowances.
Give yourself a raise. If you got a big tax refund this year, it meant that you're having too much tax taken out of your paycheck every payday. So far this year, the average refund is nearly $2,800. Filing a new W-4 form with your employer (talk to your payroll office) will insure that you get more of your money when you earn it. If you're just average, you deserve about $225 a month extra. Try our easy withholding calculator now to see if you deserve more allowances.
Boost your retirement savings. One of the best ways to lower your tax bill is to reduce your taxable income. You can contribute to up to $16,500 to your 401(k) or similar retirement savings plan in 2010 ($22,000 if you are 50 or older by the end of the year). Money contributed to the plan is not included in your taxable income. Haven't started one yet? Read Why You Need a 401(k) Right Away.
Switch to a Roth 401(k). But if you are concerned about skyrocketing taxes in the future, or if you just want to diversify your taxable income in retirement, considering shifting some or all of your retirement plan contributions to a Roth 401(k) if your employer offers one. Unlike the regular 401(k), you don't get a tax break when your money goes into a Roth. On the other hand, money coming out of a Roth 401(k) in retirement will be tax-free, while cash coming out of a regular 401(k) will be taxed in your top bracket. A provision in the fiscal cliff bill enacted Jan. 1 allows you to convert money in your regular 401(k) to your Roth 401(k). (Previously, this type of conversion wasn't available unless you were 59 ½ or older or had left your job) Just remember that you'll have to pay income taxes on the amount you convert.
Fund an IRA. If you don't have a retirement plan at work, or you want to augment your savings, you can stash money in an IRA. You can contribute up to $5,500 in 2010 ($6,500 if you are 50 or older by the end of the year). Depending on your income and whether you participate in a retirement savings plan at work, you may be able to deduct some or all of your IRA contribution. Or, you can choose to forgo the upfront tax break and contribute to a Roth IRA that will allow you to take tax-free withdrawals in retirement.
Go for a health tax break. Be aggressive if your employer offers a medical reimbursement account — sometimes called a flex plan. These plans let you divert part of your salary to an account which you can then tap to pay medical bills. The advantage? You avoid both income and Social Security tax on the money, and that can save you 20% to 35% or more compared with spending after-tax money. Starting in 2013, the maximum you can contribute to a health care flex plan is $2,500. Use our handy calculator to figure out how much you can save.
Pay child-care bills with pre-tax dollars. After taxes, it can easily take $7,500 or more of salary to pay $5,000 worth of child care expenses. But, if you use a child-care reimbursement account at work to pay those bills, you get to use pre-tax dollars. That can save you one-third or more of the cost, since you avoid both income and Social Security taxes. If your boss offers such a plan, take advantage of it.
Ask your boss to pay for you to improve yourself. Companies can offer employees up to $5,250 of educational assistance tax-free each year. That means the boss pays the bills but the amount doesn't show up as part of your salary on your W-2. The courses don't even have to be job-related, and even graduate-level courses qualify.
Be smart if you're a teacher or aide. Keep receipts for what you spend out of pocket for books, supplies and other classroom materials. You can deduct up to $250 of such out-of-pocket expenses ... even if you don't itemize.
Pay back a 401(k) loan before leaving the job. Failing to do so means the loan amount will be considered a distribution that will be taxed in your top bracket and, if you're younger than 55 in the year you leave your job, hit with a 10% penalty, too.
Tally job-hunting expenses. If you count yourself among the millions of Americans who are unemployed, make sure you keep track of your job-hunting costs. As long as you're looking for a new position in the same line of work (your first job doesn’t qualify), you can deduct job-hunting costs including travel expenses such as the cost of food, lodging and transportation, if your search takes you away from home overnight. Such costs are miscellaneous expenses, deductible to the extent all such costs exceed 2% of your adjusted gross income.
Keep track of the cost of moving to a new job. If the new job is at least 50 miles farther from your old home than your old job was, you can deduct the cost of the move . . . even if you don't itemize expenses. If it's your first job, the mileage test is met if the new job is at least 50 miles away from your old home. You can deduct the cost of moving yourself and your belongings. If you drive your own car, you can deduct 24 cents per mile for a 2013 move, plus parking and tolls.
Save energy, save taxes. Congress extended a $500 tax credit for energy-efficient home improvements, such as new windows, doors and skylights, through 2013. Be advised, though, that $500 is the lifetime maximum, so if you claimed $500 in energy-efficient credits before this year, you can’t claim this credit. There are also restrictions on specific projects; for example, the maximum you can claim for new energy-efficient windows is $200.
Think green. A separate tax credit is available for homeowners who install alternative energy equipment. It equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, and wind turbines, including labor costs. There is no cap on this tax credit, which is available through 2016.
Put away your checkbook. If you plan to make a significant gift to charity in 2013, consider giving appreciated stocks or mutual fund shares that you've owned for more than one year instead of cash. Doing so supercharges the saving power of your generosity. Your charitable contribution deduction is the fair market value of the securities on the date of the gift, not the amount you paid for the asset, and you never have to pay tax on the profit. However, don’t donate stocks or fund shares that lost money. You'd be better off selling the asset, claiming the loss on your taxes, and donating cash to the charity.
Tote up out-of-pocket costs of doing good. Keep track of what you spend while doing charitable work, from what you spend on stamps for a fundraiser, to the cost of ingredients for casseroles you make for the homeless, to the number of miles you drive your car for charity (at 14 cents a mile). Add such costs with your cash contributions when figuring your charitable contribution deduction.
Time your wedding. If you're planning a wedding near year-end, put the romance aside for a moment to consider the tax consequences. The tax law still includes a "marriage penalty" that forces some pairs to pay more combined tax as a married couple than as singles. For others, tying the knot saves on taxes. Consider whether Uncle Sam would prefer a December or January ceremony. And, whether you have one job between you or two or more, revise withholding at work to reflect the tax bill you'll owe as a couple.
Beware of Uncle Sam's interest in your divorce. Watch the tax basis — that is, the value from which gains or losses will be determined when property is sold — when working toward an equitable property settlement. One $100,000 asset might be worth a lot more — or a lot less — than another, after the IRS gets its share. Remember: Alimony is deductible by the payer and taxable income to the recipient; a property settlement is neither deductible nor taxable.
The stork brings tax savings, too. A child born, or adopted, during the year is a blessed event for your tax return. An added dependency exemption will knock $3,900 off your taxable income, and you'll probably qualify for the $1,000 child credit, too. You don't have to wait until you file your 2013 return to reap the benefit. Add at least one extra withholding allowance to the W-4 form filed with your employer to cut tax withholding from your paycheck. That will immediately increase your take-home pay.
Tally adoption expenses. Thousands of dollars of expenses incurred in connection with adopting a child can be recouped via a tax credit, so it pays to keep careful records. The credit can be as high as $12,970. If you adopt a special needs child, you get the maximum credit even if you spend less.
Save for college the tax-smart way. Stashing money in a custodial account can save on taxes. But it can also get you tied up with the expensive "kiddie tax" rules and gives full control of the cash to your child when he or she turns 18 or 21. Using a state-sponsored 529 college savings plan can make earnings completely tax free and lets you keep control over the money. If one child decides not to go to college, you can switch the account to another child or take it back.
Use Coverdells to pay for private school tuition. Coverdell Savings Accounts allow parents and grandparents to use tax-free dollars to pay private-school tuition and other education-related costs for elementary and high-school students. You can contribute up to $2,000 to a Coverdell Education Savings Account for any beneficiary in 2013. The maximum contribution was scheduled to drop to $500 this year but the fiscal cliff bill permanently extended the $2,000 threshold. You don't get a deduction, but money you stash in a Coverdell grows tax-deferred and can be withdrawn tax-free to pay education bills. Beyond tuition and fees, you can use Coverdell money to pay for tutoring, books and supplies, uniforms and transportation. You can buy a computer for the whole family to use and pay for Internet access, too. The contribution limit is phased out if your adjusted gross income is between $190,000 and $220,000.
Use a Roth IRA to save for college. Sure, the "R" in IRA stands for retirement, but because you can withdraw contributions at any time tax- and penalty-free, the account can serve as a terrific tax-deferred college-savings plan. Say you and your spouse each stash $5,000 in a Roth starting the year a child is born. After 18 years, the dual Roths would hold about $375,000, assuming 8% annual growth. Up to $180,000 — the total of the contributions — can be withdrawn tax- and penalty-free and any part of the interest can be withdrawn penalty-free, too, to pay college bills.
Use Savings Bonds to pay for college: If you cash in Savings Bonds to pay for your child’s college tuition, you may be able to avoid taxes on the interest. The tax break is available for EE and I Bonds issued after 1989. To qualify for the tax break, you must have been at least 24 years old when the bond was issued. The interest exclusion phases out when your 2013 modified adjusted gross income on a joint return is between $112,050 and $142,050, or between $74,700 and $89,700 for single filers and other types of returns.
Fund a Roth IRA for your child or grandchild. As soon as a child has income from a job — such as babysitting, a paper route, working retail — he or she can have an IRA. The child's own money doesn't have to be used to fund the account (fat chance that it would). Instead, a generous parent or grandparent can provide the funds, or perhaps match the child's contributions dollar for dollar. Long-term, tax-free growth can be remarkable.
Use a Roth IRA to save for your first home. A Roth IRA can be a powerful tool when you're saving for your first home. All contributions can come out of a Roth at any time, tax- and penalty-free. And, after the account has been opened for five years, up to $10,000 of earnings can be withdrawn tax- and penalty-free for the purchase of your first home. Say $5,000 goes into a Roth each year for five years for a total contribution of $25,000. Assuming the account earns an average of 8% a year, at the end of five years, the Roth would hold about $31,680 — all of which could be withdrawn tax- and penalty-free for a down payment.
Convert to a Roth IRA. Switching a traditional IRA to a Roth requires paying tax on the converted amount, but that can be a fabulous tax-saving investment because all future earnings inside the Roth can be tax free in retirement. (Withdrawals from traditional IRAs are taxed in your top tax bracket.)
Undo a Roth conversion gone bad. When you convert a traditional IRA to a Roth, you must pay tax on the amount you convert. But what if the investments in the new Roth IRA fall in value? You get a chance for a do-over. You have until October 15 of the year following the conversion to "unconvert" and avoid paying tax on the money that evaporated. You can then redo the conversion the following year.
Protect your heirs. Be sure beneficiary designations for your IRAs and 401(k)s are up to date. If your IRA goes to your estate rather an a designated beneficiary, unfavorable withdrawal rules could cost your heirs dearly.
Roll over an inherited 401(k). A recent change in the rules allows a beneficiary of a 401(k) plan to roll over the account into an IRA and stretch payouts (and the tax bill on them) over his or her lifetime. This can be a tremendous advantage over the old rules that generally required such accounts be cashed out, and all taxes paid, within five years. To qualify for this break, you must name a person or persons (not your estate) as your beneficiary. If your 401(k) goes through your estate, the old five-year rule applies.
Help your adult children earn a credit for retirement savings. The Retirement Savers Credit can be as much as $1,000, based on up to 50% of the first $2,000 contributed to an IRA or company retirement plan. It's available only to low-income taxpayers, though, who are often the least able to afford such contributions. Parents can help, however, by giving an adult child (who cannot be claimed as a dependent and who is not a full-time student) the money to fund the retirement account contribution. The child not only saves on taxes, but also saves for his or her retirement.
The bank of mom and dad. If your adult children ask for a loan to help them buy a house or start a business, beware that Uncle Sam has something to say about the deal. If the kids want to borrow more than $10,000, you may be required to charge a minimum amount of interest. And if you don't? You have to report the "phantom" interest as income anyway.
Deduct interest paid by mom and dad. UWhen parents make payments on a child’s student loan, the child can claim a tax deduction for the interest, as long as the parents can't claim him or her as a dependent, even if he or she doesn't itemize.
Make the most of the tax-free home sale profit. Up to $250,000 of home-sale profit is tax free ($500,000 if you are married and file a joint return) if you own and live in the house for two of the five years leading up to the sale. If you are bumping up on the limits, consider selling and buying a new home to start the tax-free clock ticking again. There is no limit on the number of times you can claim tax-free profit on the sale of a home.
Don't underestimate the cost of home-equity debt. Generally, interest on up to $100,000 of debt secured by your home can be deducted, no matter what you use the money for. But if you are among the growing number of taxpayers subjected to the alternative minimum tax (AMT), home-equity debt is only deductible if the loan was used to buy or improve your home.
Second homes can offer a vacation from taxes. If you're trying to figure whether you can afford a second home, remember that you'll get some help from the IRS. Mortgage interest on a loan to buy a second home is deductible just as it is for the mortgage on your principal residence. Interest on up to $1.1 million of first- and second-home debt can be deducted. Property taxes can be written off, too. Things get more complicated — and perhaps more lucrative-if you rent out the place part of the year to help cover the bills.
Watch the calendar at your vacation home. If you hope to deduct losses attributable to renting the place during the year, be careful not to use the house too much yourself. As far as the IRS is concerned, "too much" is when personal use exceeds more than 14 days or more than 10% of the number of days the home is rented. Time you spend doing maintenance or repairs does not count as personal use, but time you let friends or relatives use the place for little or no rent does.
Stay actively involved in rental real estate. Generally, anti-tax-shelter legislation prevents losses from real estate investments from being deducted against other kinds of income. But, if you are actively involved in a rental activity, you can deduct up to $25,000 of such losses ... if your adjusted gross income is less than $100,000. You don't have to mow grass and unclog toilets to qualify as actively involved; but you should make sure you're involved in setting rents and approving tenants and management firms.
Use a tax-free exchange to acquire new property. By trading one rental property for another, for example, you avoid the capital gains taxes you'd incur if you sold the first property ... leaving you with more to invest in the second.
Use an installment sale of real estate to defer a tax bill. If the buyer pays you in installments, the IRS will let you pay the tax bill on your profit in installments, too. You must charge interest on the deal, and each payment you receive will have three parts: interest (taxable at your top rate), capital gain (taxed at a maximum of 20% in 2013) and return of your investment (tax-free).
Convert a vacation home to your principal residence. Until 2009, there was a sweet tax break for folks who sold their homes, claimed tax-free profit and then moved into a vacation property. After they lived in that home for two years, they could sell and claim tax-free profit again ... including appreciation from the days the place was a vacation home. There can still be some real tax benefits to this strategy, but the value has fallen. A portion of any profit on the sale of a vacation-home-turned-principal-residence will not qualify as tax-free home-sale profit. The taxable portion will be based on the ratio of the time after 2008 the property was used as a vacation home to the total period of ownership.
Take advantage of tax-free rental income. You may not think of yourself as a landlord, but if you live in an area that hosts an event that draws a crowd (a Super Bowl, say, or the presidential inauguration), renting out your home temporarily could make you a bundle — tax-free — while getting you out of town when tourists overrun the place. A special provision in the law lets you rent a home for up to 14 days a year without having to report a dime of the money you receive as income.
Home buyer's Bible. Be a packrat with paperwork. Some costs associated with buying a new home affect your "tax basis," the amount from which you'll figure your profit when you sell; others can be deducted in the year of the purchase, including any points you pay (or the seller pays for you) to get a mortgage and any property taxes paid by the seller in advance for time you actually own the home.
Don't buy a tax bill. Before you invest in a mutual fund near the end of the year, check to see when the fund will distribute dividends. On that day, the value of shares will fall by the amount paid out. Buy just before the payout and the dividend will effectively rebate part of your purchase price, but you'll owe tax on the amount. Buy after the payout and you'll get a lower price, and no tax bill.
Check the calendar before you sell. You must own an investment for more than one year for profit to qualify as a long-term gain and enjoy preferential tax rates. The "holding period" starts on the day after you buy a stock, mutual fund or other asset and ends on the day you sell it.
Keep a running tally of your basis. For assets you buy, your "tax basis" is basically how much you have invested. It's the amount from which gain or loss is figured when you sell. If you use dividends to purchase additional shares, each purchase adds to your basis. If a stock splits or you receive a return-of-capital distribution, your basis changes. Only by carefully tracking your basis can you protect yourself from overpaying taxes on your profits when you sell. A new IRS rule requires financial services and brokerage firms to report to the IRS the cost basis for stocks purchased on or after January 1, 2011 and mutual funds purchased on or after January 2, 2012. They’ll also provide you with this information, which should make it easier for you to avoid costly mistakes when you sell. For older shares, though, you’ll still need to track your basis to avoid overpaying taxes on your profits.
Mine your portfolio for tax savings. Investors have significant control over their tax liability. As you near the end of the year, tote up gains and losses on sales to date and review your portfolio for paper gains and losses. If you have a net loss so far, you have an opportunity to take some profit tax free. Alternatively, a net profit on previous sales can be offset by realizing losses on sales before the end of the year. (This strategy applies only to assets held in taxable accounts, not tax-deferred retirement accounts such as IRAs or 401(k) plans).
Tell your broker which shares to sell. Doing so gives you more control over the tax consequences when you sell stock. If you fail to specifically identify the shares to be sold, the tax law's FIFO (first-in-first-out) rule comes into play and the shares you've owned the longest (and perhaps the ones with the biggest gain) are considered to be sold. With mutual funds, an "average basis" can be used when determining gain or loss; but that alternative isn't available for stocks.
Avoid the wash sale rule. If you sell a stock, bond or mutual fund for a loss and then buy back the identical security within 30 days, you can't claim the loss on your tax return. The IRS considers the transaction a wash, since your economic situation really hasn't changed. It's easy to avoid being stung by the "wash sale" rule, though. Watch the calendar or, buy similar but not identical securities.
Ask your broker for a favor. The law allows investors to deduct a loss on a worthless security, but only if you can prove the stock is absolutely worthless. If you own stock you're sure isn't coming back, ask your broker to buy it from you for a nominal amount. You can then report the sale and claim your loss.
Think twice about selling stock for a profit if you're subject to the AMT. Although long-term capital gains benefit from the same 20% maximum rate under both the regular tax rules and the alternative minimum tax, a capital gain can effectively cost more in AMT-land. The special AMT exemption is phased out as income rises so, for example, a $1,000 capital gain can wipe out $250 of the exemption, effectively exposing $1,250 to tax. That means your tax bill rises by more than $150 for that $1,000 gain.
Pay tax sooner rather than later on restricted stock. If you receive restricted stock as a fringe benefit, considering making what's called an 83(b) election. That lets you pay tax immediately on the value of the stock rather than waiting until the restrictions disappear when the stock "vests." Why pay tax sooner rather than later? Because you pay tax on the value at the time you get the stock, which could be far less than the value at the time it vests. Tax on any appreciation that occurs in between then qualifies for favorable capital gains treatment. Don't dally: You only have 30 days after receiving the stock to make the election.
Minimize the bite of the "kiddie tax." The rule that taxes a child's income at the parents' rate now covers children up to age 19, or up to age 24 if the child is a full-time student. You can minimize the damage by steering a child's investments into tax-free municipal bonds or growth stocks that won't be sold until the child turns 19, or 24 for full-time students.
Consider tax-free bonds. It's easy to figure whether you'll come out ahead with taxable or tax-free bonds. Simply divide the tax-free yield by 1 minus your federal tax bracket to find the "taxable-equivalent yield." If you're in the 33% bracket, your divisor would be 0.67 (1 - 0.33). So, a tax-free bond paying 5% would be worth as much to you as a taxable bond paying 7.46% (5 ÷ 0.67). A bond swap may pay off. It's a fact of life: As market interest rates rise, bond values fall. If you have bond that have lost value, consider a bond swap. You sell your losers, cash in the tax loss and invest the proceeds in higher-yielding bonds to maintain your income stream.
Use Treasury bills to defer taxes. Interest on three- and six-month Treasury bills is taxed in the year it is paid. So, buying a T-bill that matures in 2013 means you don't have to report the income until you file your 2013 return in 2014. Remember, Treasury interest is completely exempt from state or local taxes, too.
Death and taxes. Someone who is terminally ill may want to sell investments that show a paper loss. Otherwise, the "tax basis" of the property — the value from which the heir will figure gain or loss when he or she sells — will be "stepped-down" to date-of-death value, preventing anyone from claiming the loss. If you want to keep property, such as a vacation home, in the family, consider selling to a family member. You get no loss deduction, but it could save the buyer taxes later on.
Time claiming Social Security benefits. If you stop working, you can claim benefits as early as age 62. But note that each year you delay — until age 70 — promises higher benefits for the rest of your life. And, delaying benefits means postponing the time you'll owe tax on them.
Dodge a 50% tax penalty. Taxpayers older than 70½ are required to take minimum withdrawals from their IRAs each year. Failing to do so, subjects them to one of the toughest penalties in the tax law: the IRS claims 50% of the amount that should have come out of the account. Your IRA sponsor can help pinpoint the amount of the required payout.
Keep careful records of the cost of medically necessary improvements. To the extent that such costs — for adding a wheelchair ramp, for example, lowering counters or widening a doorway or installing hand controls for a car — exceed any added value to your home or vehicle, that amount can be included in your deductible medical expenses.
Include travel expenses in medical deductions. In addition to the cost of getting to and from the doctor, you can deduct up to $50 a night for lodging if seeking medical care requires you to be away from home overnight. The $50 is per person, so if you travel with a sick child to get medical care, you can deduct $100 a day. Starting in 2013, you get a tax benefit only to the extent your expenses exceed 10% of adjusted gross income, or 7.5% if you’re 65 or older.
Crank in the value of deducting long-term-care premiums. As you shop for long-term care insurance, remember that a portion of the cost is deductible. The older you are, the more you can write off. For employees, this is a medical expense which means it only saves money if your medical expenses exceed 10% of your adjusted gross income (7.5% if you’re 65 or older.) If you're self-employed, you avoid the haircut and get this deduction even if you don't itemize.
Give it away. Money you give away during your lifetime won't be in your estate to be taxed at your death. That's one reason there's also a federal gift tax. The law allows you to give up to $14,000 to any number of people in 2013 without worrying about the gift tax. If your spouse agrees not to give anything to the same person, you can give $28,000 a year to each individual. If you have four married kids, for example, and you give $28,000 to all eight children and in-laws, you can shift $224,000 out of your estate gift-tax free each year.
Choose the right kind of business. Beyond choosing what business to go into, you also have to decide on the best form for your business: a sole proprietorship, a subchapter S corporation, a C-corp or a limited-liability company (LLC). Your choice will have a major impact on your taxes.
Hire your children. If you have an unincorporated business, hiring your children can have real tax advantages. You can deduct what you pay them, thus shifting income from your tax bracket to theirs. Since wages are earned income, the "kiddie tax" does not apply. And, if the child is under age 18, he or she does not have to pay Social Security tax on the earnings. One more advantage: the earnings can serve as a basis for an IRA contribution.
Watch start-up costs. Generally, the costs of starting up a new business must be amortized, that is, deducted over years in the future. But you can deduct up to $5,000 of start-up costs in the year you incur them, when the tax savings could prove particularly helpful. Take our quiz on savvy start-up moves.
Avoid the hobby-loss rules. There's a heads-the-IRS-wins-tails-you-lose rule if the IRS determines your activity is a hobby rather than a for-profit business. You still have to report any earnings as income, but there are restrictions on deducting expenses and you can't deduct a loss. To avoid this problem, run your activity in a business-like manner, including having a separate bank account and having business cards printed.
Time receipt of self-employment income. Those who run their own businesses have a lot of flexibility at year-end. To push the receipt of income into the following year, delay mailing bills to clients until late in December that payment is received after December 31. Or, pay business expenses before January 1 to lock in deductions.
Don't be afraid of home-office rules. If you use part of your home regularly and exclusively for your business, you can qualify to deduct as home-office expenses some costs that are otherwise considered personal expenses, including part of your utility bills, insurance premiums and home maintenance costs. Some home-business operators steer away from these breaks for fear of an audit. But a new IRS rule that takes effect this year will make it easier to claim this tax break. Instead of calculating individual expenses, you can claim a standard deduction of $5 for every square foot of office space, up to 300 square feet.
Cut compensation, boost dividends. Principals in closely held businesses may want to shift part of their compensation from salary (which is taxed in their top bracket) to dividends (which is taxed at a maximum 15% rate). This can pay off if the corporation is in a low tax bracket, so the loss of the deduction for dividends paid is more than offset by the owner's savings.
Stash cash in a self-employed retirement account. If you have your own business, you have several choices of tax-favored retirement accounts, including Simplified Employee Pensions (SEPs) and individual 401(k)s. Contributions cut your tax bill now while earnings grow tax-deferred for your retirement.
Pay estimated taxes ... or not. If you receive significant income not subject to withholding — from self-employment or investments, for example — you probably need to make quarterly estimated tax payments to avoid an IRS penalty. But, if withholding will equal 100% of your 2012 income tax bill (or 110% if your income was over $150,000), you don't need to make estimated payments ... no matter how much extra income you make in 2013.
Take Uncle Sam shopping for your new business vehicle. It may not be the greenest of strategies, but if you need a new vehicle for your business, realize that Congress offers special tax incentives if you buy a heavy sports-utility vehicle or a pick-up. While the first-year write-off for most business cars is limited to around $12,000, you can "expense" much more if you buy a heavy SUV or pick-up truck for your business.