Top 3 Tax Saving Tips | Accounting and Tax Updates

 Top 3 Tax Saving Tips for 2016

Year is about to end but you can still act to reduce your tax liability. Here are 3 of many tax saving tips. We can help you realize these and other savings in your tax returns.

Child Investment Income

A child’s investment income up to $2,100 is either tax free or taxed at lower rate. Shifting investment income to your child can generate tax savings. Contact us today to discuss how you can realize this tax saving.

Example: Zoey, who is 12 years old, earns investment income of $2,000 in 2016. The first $1,050 of investment income is tax free. The remaining $950 is taxed at the child’s tax rate, which would be significantly lower than the parent’s rate.

Saver’s Credit – up to $2,000

Contribute to your IRA and get credit up to $2,000. If your income is less than $62,000, you can qualify to get tax credit of up to 50% of your contributions. You can contribute to an IRA account until April 17, 2017 to claim the credit in 2016 tax return. Most credit unions and banks offer free IRA accounts. Contact us today to discuss how you can get up to $2,000 tax credit.

Example: Ali, who works at a convenience store, is married and earned $37,000 in 2016. Ali’s wife was unemployed in 2016 and didn’t have any earnings. If Ali contributes $2,000 to his IRA in 2016, he may claim a 50% credit, $1,000, for his $2,000 IRA contribution.

Contribute to IRA

If you don’t qualify for Saver’s credit due to income limitations, you can still benefit by contributing to IRA. Contribute up to $5,500 to a traditional IRA to lower your taxable income. Self-employed individuals or small business owners can also open a SEP IRA which has a higher contribution limit of up to $53,000 per year, which can reduce your taxable income. Contact us today to get more info on benefits of opening an IRA.

Example: Salim and Shamim, each contribute $5,500 to traditional IRA and earned $95,000 in 2016. IRA contribution will reduce their taxable income by $11,000 and tax liability by $2,750.