12 tax deductions and credits clients shouldn't overlook: Tax Strategy Scan
Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
12 tax deductions and credits you shouldn't overlook
The earned income tax credit, the saver's credit and tax deductions for IRA and HSA contributions are among the valuable tax breaks that clients should take advantage of to boost their savings on their returns, according to this article in Morningstar. Tax deductions can help lower their taxable income while tax credits could cut their tax bill dollar for dollar. Some of these tax credits are also refundable, meaning clients can get a refund in case the credits exceed their actual tax liability.
Married with taxes: How to choose the best filing status
Most married couples are advised to consider filing joint returns to qualify for greater tax benefits and reduce their liability, according to this article in CBS Moneywatch. However, some couples are better off filing separately, especially if one spouse faces unpaid tax dues or child support or alimony from a previous marriage, according to the article. "If you're not sure about your spouse's activities, if you don't have all the information, then you really need to think about whether you should file married filing separately," an expert says.
5 completely legal ways to lower your taxes
Funding a traditional retirement account is one legal way for clients to reduce their tax liability, according to this Motley Fool article. That's because contributions to these accounts are excluded from their taxable income, according to the article. Clients can also minimize their tax burden by making pretax contributions to an HSA, utilizing tax-loss harvesting and donating to charity. Self-employed clients should also make the most of deductible business expenses to reduce their taxes.
Americans lose $5.7 billion each year to 401(k) and IRA early withdrawal fees
Clients lost about $5.7 billion due to penalties for premature withdrawals from their 401(k) plans and IRAs, according to data from ICI in this CNBC article. These savings vehicles offer tax benefits to build the retirement nest egg but charge a 10% penalty plus income taxes for those who dip into their savings before the age 59 ½, the article says. “It’s a tax, even though we call it a penalty, and gets paid to the IRS,” an expert says.