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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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