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Tax considerations for the New Year
The tax man cometh . Time to prepare yourself to take all possible deductions . Retirement accounts
Retirement accounts are a great method for reducing taxes . In fact , the 401k and IRA were created give incentives for saving money . Each dollar contributed reduces taxable income .
401k -- The annual limit of contributions is $ 18,000 ($ 24,000 for those over 50 ) and this amount does not include employer contributions .
IRA -- The annual limit is $ 5500 ($ 6500 for those over 50 )
College 529 -- You can contribute up to $ 14,000 per year while still avoiding the gift tax penalty . While there is no federal tax deduction for this , many states allow a deduction for these contributions .
HSA ( Health Savings Account ) -- Available to those with a highdeductible health insurance plan , the HSA allows one to contribute up to $ 3,350 for an individual and $ 6,750 for a family ( add an extra $ 1,000 if you are over 55 ). Charitable Contributions
For philanthropic individuals , charitable contributions are a great way to manage your tax burden while providing for those less fortunate or other worthy causes . In most circumstances , up to 50 percent of yearly income can be deducted each year for qualified gifts .
Something to consider when discussing charitable gifts is that they don ' t have to be cash . Gifts
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of clothing , furniture , cars , household goods , stocks , property , and even mileage spent on behalf of the charity are all tax deductible at the end of the year for full or partial value .
Investment Strategy Checkup
Year-end is a great time to rebalance portfolios for a couple of reasons : Rebalancing should be done periodically to ensure that one ' s portfolio has not skewed too far in one direction during the year ' s ups and downs .
It could provide opportunities for tax-loss harvesting to help offset any capital gains earned during the tax year .
New Year ' s budget resolution ? Try zero-sum budgeting
If your goal is to make 2017 , a better financial year , try Zero-Sum Budgeting , a simple idea that can bring big results .
According to FamilyFinancier . com , Zero-Sum Budgeting revolves around two main ideas : Budgeting to zero and paying for next month ' s expenses with this month ' s income .
What is budgeting to zero ?
Budgeting to zero means spending every single dollar on a specific goal .
You could have goals like paying a bill , savings toward a holiday or adding to an investment .
Over time you can identify overspending in one or multiple categories and make adjustments . Slowly you can create a reliable growth in savings .
How to Pay for Next Month ' s Expenses Today
The second main goal for the zero-sum method is to pay for the month ahead with the current month ' s income . This allows for two benefits :
* No issues paying bills on time * Safety net of at least one month ' s income in case of emergency
Accomplishing these two goals would put someone far ahead of the average American . According to a recent Federal Reserve survey , 46 percent of Americans said that they would have to borrow or sell something to pay for a $ 400 emergency .
Given this reality , paying bills a month ahead can take time unless a person already has savings . Once accomplished , this goal can provide substantial financial security and peace of mind . Tips for Implementing the Zero-sum Budget
Start with your monthly bank statement in hand . Make a list of spending categories . Assign expenditures to one of these categories . This helps you see what you actually spend and where .
Now , decide where you can cut spending and where you can add spending , to suit goals such as paying off bills . Make sure every single dollar you bring in has a ' home ' in your budget .
A few recommendations for someone trying this , or any other , budgeting method :
* Use an app , tool , or spreadsheet to help stay organized and accurate . This makes the process so much easier .
* Find an accountability partner .
* If overspending is a problem , roll with the punches and work to get back on track .
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