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5 Infallible Ways to Lower Your Income Taxes

Posted By Jim On 11/10/2008 @ 6:49 am In Taxes | 13 Comments

Taxes suck. We all understand why we need taxes, but they still suck. Everyone hates them. We hate them every time we go to the store (unless you’re in Alaska, Oregon, Montana, Delaware, or New Hampshire – states with no states sales tax), we hate them every time April 15th rolls around, and homeowners hate them when that real estate assessment or property tax bill shows up in our mailbox.

So, here are five infallible ways to lower your income taxes (you’re on your own for anything else), you’ll thank me later.

Don’t save. One of the down sides of saving money is that you can earn interest on your money. If you happen to get tricked into opening a high yield savings account, you could be earning far more than at a regular checking account. While at first it sounds good, you have to realize that interest is taxed and all you’re doing is giving the government more of your money! Stay with 0% APY checking accounts, that will guarantee your tax bill won’t go up because of pesky interest.

Earn less. The beauty about taxes is that it’s a percentage of how much you earn, so if you earn less, you are taxed less! Take this example of someone who is in the 25% tax bracket. If he earns an additional $100, then he has to pay an extra $25 in taxes. That’s unconscionable! If he were to instead earn $100 less, then he would pay $25 less in taxes. Heck, quit.

Lose money in the stock market. There are plenty of penny stocks you can roll the dice with and the IRS lets you deduct up to $3,000 of losses against other income. If you were to go to Vegas and lose it on the craps table, the IRS would let you deduct $0! Take advantage by picking some no-name stocks and hoping they do poorly! If you’re in the 25% tax bracket, losing $3000 in the stock market means you will not have to pay $750 to the IRS.

Start cranking out kids. Lots of them. Kids are great tax deductions, just start popping them out and you get to claim them as dependents (deduction!) and you might even the child tax credit (cha-ching!). That child tax credit [3] is worth up to a thousand bucks a child! That’s right, Jon and Kate Plus 8 [4] get $8,000 in child tax credits each year! Sometimes when I see that show on TV, the kids look like little bundles of hundred dollar bills.

Buy too much house. The most important thing about a house is the size of the mortgage interest deduction. Well, that’s the second most important thing, the first most important thing is to get the biggest house out of anyone you know. But, that mortgage interest deduction is going to take serious money off your tax bill and the more you pay in interest, the better (plus, it means property taxes will be higher too!). While you’re at it, remember to get a home equity loan on the equity you have built up so you can get a deduction on that interest as well. Leaving equity in your home is like leaving money in the banana stand, you’re just asking for trouble.

(Photo: mlee [5])


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[3] child tax credit: http://www.irs.gov/newsroom/article/0,,id=106182,00.html

[4] Jon and Kate Plus 8: http://tlc.discovery.com/tv/jon-and-kate/jon-and-kate.html

[5] mlee: http://www.flickr.com/photos/mlee/635895488/sizes/m/

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