You work too hard to give your money away to anyone. The IRS and creditors work even harder to get it.
There are many households concerned about their financial future or lack of. As you continue to address the concerns of debt management you must be willing to track the progress while considering ways to lower your taxable income.
“There have always been Wall Street economists wanting to cheerlead the recovery, and quick to jump on any piece of news showing a great boom is around the corner,” said Kenneth Rogoff, a Harvard economist. “The data so far are more consistent with a very moderate recovery.”
There are a number of reasons that would be the case. American households are trying to reduce debt to stabilize finances. But they are doing so slowly, with total household debt at 94 percent of gross domestic product in the fourth quarter down just slightly from 96 percent when the recession began in late 2007.
“When you have a recession that’s amplified by a deep financial crisis, the recovery is slower and more painful, much akin to recovering from a heart attack,” said Rogoff
As difficult as it is to compare your finances to a heart attack, it’s a harsh reality. Everything in your life is running smoothly then BANG, you are suddenly overwhelmed with tightness of chest pains and headaches. This is a result of your financial dilemma.
It is possible to take control of your finances while reducing your taxable income. Although your vision of financial freedom is clouded by your debt you can create a plan to move forward.
- Invest the maximum contribution into your 401K. Your allowable limit for 2012 is $17,000. If you are 50 years or older your maximum contribution is $22,500. Your employer may have a limit of percentage contribution guideline. Check with your employer about your contribution. The money you invest in your 401K comes out of your paycheck on a pretax basis. Your taxable income is lowered by the amount you invest.
- You can also reduce your taxable income by contributing toward a Traditional IRA. The maximum contribution for 2012 is $5,000. If you are 50 years or older your maximum contribution is $6,000. You will also grow your investment account on a tax deferred basis. This means your money has a better chance of growing faster now…not later and you won’t have to pay taxes on this account until you withdraw the funds.
- There are those who prepare for medical expenses, deductibles and uncovered liabilities. A health savings account through your employer will also help to lower your taxable income. The maximum contribution for a single plan is $3,100 and $6,250 for a family plan. Contact your human resource or insurance broker to make sure your account qualifies as a health savings account (HSA).
Keep in mind that you are the biggest advocate to obtain financial empowerment. In addition to the tips that were given to you, consider other ways to build wealth. Do not get trapped by the large tax refunds given by the government. It is your money that is taxed. You can build a secure savings and retirement plan instead of giving your money away to the IRS and creditors.
“Love yourself enough to support yourself.”
© SMG, LLC
- The Biggest IRA Mistake Is Not Actually Knowing How They Work (businessinsider.com)
- Tax-Wise Retirement Planning (turbotax.intuit.com)
- How to Optimize Your Paycheck (forbes.com)