How To Pay Less Taxes

If you think taxes are something to just file mindlessly, you're wrong. Taxes involve giving thousands of dollars to the government. Yet you can reduce what you pay out -- and increase what you keep from your hard work -- if you take up the reins and start getting prepared now, before the end of the year.

Last week, we talked about ways to offset your taxes when it comes to mutual funds. Let's take a look at 10 other ways to reduce what you give to Uncle Sam.

1. Find out if you're eligible for a deductible IRA (Individual Retirement Account) contribution. You have until April 15, 2000 to make a fully or partially deductible IRA contribution. Whether or not you qualify will depend primarily on your income level.

2. Even if you don't qualify for a tax deduction, save a couple hundred dollars a month for the next few months and make a Roth IRA contribution before April 15 if you meet the income limits and believe you will be in a lower tax bracket at retirement.

3. Bernie DeLaRosa, an American Express Financial Advisor and Managing Principal of the Minneapolis office, says you might "consider giving appreciated stock instead of cash to your church or favorite charity." You and the qualified charity will avoid having to pay capital gains taxes, plus you get the deduction on your tax return.

4. If you bought a house during 2000, make your January payment in December to increase your interest and real estate tax deductions. DeLaRosa says that this holds true whether you purchased a new home in 2000 or not, but it's particularly important in the first year of home ownership to get in as many tax interest payments as possible.

5. Jan Holman, also an American Express advisor, recommends pre-paying your state tax bill in December. "This way, you can claim the deduction on your 2000 return."

6. "I remind all my clients who are retired or in their 70s to make sure they take their required minimum distributions (RMD) by December 31st," says DeLaRosa. "Failure to do so will result in a 50% penalty on what should have been taken out, that the IRS will enforce."

7. If you're getting married, consider the tax implications. "Plan ahead even if you're marrying later in the year," says DeLaRosa. He cautions that it's important for this demographic group to seriously consider the "marriage penalty" of changing from filing single to married filing jointly; 401(k) contributions; adjusting withholdings; charitable contributions; and joining households.

8. Increase your 401(k) contributions in anticipation of your annual raise before you receive the benefits directly through your paycheck. Most employees can make 401(k) changes in January, and should do so to decrease their taxable take-home income for the entire year.

9. Get a year-end financial statement detailing your childcare expenses for 2000 from your childcare provider. However, Holman advises, watch out about claiming this deduction if you don't pay FICA taxes for your caregiver. "This may serve as a red flag to the IRS," Holman cautions.

10. Check out tax credits to see if you qualify for any, such as the Child Tax Credit, the Child and Dependent Care Credit for your kids, the Hope Scholarship Credit and the Lifetime Learning Credit for educational expenses.