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The following are some random thoughts that bounced around in my frugal mind on the topic of taxes.
- reduce your income taxes by maximizing deductions that reward you for saving. Think Health Savings Accounts, IRAs (not Roths, those are after tax dollars), and 529 college savings plans;
- stop and pause before spending money because someone tells you the purchase will generate a tax break. This is most commonly associated with home and car purchases. Remember, the person is selling you something. They are thinking about their bottom line, not what is wise for your future. I am stunned by the numbers of people who think they are writing off mortgage interest and property taxes, when in some cases the amount "written off" is equal to or just above the standard deduction everyone gets - they would have gotten that amount without going into debt;
- file your taxes on time. Avoid penalties. This is the IRS, then can and will get the money owed. Why pay more, don't delay, get organized; and
- use windfalls, such as a refund or inheritance, to pay off debit. You will automatically save the interest that you would have been charged. Also, this type of transaction does not generate income and will not show up on your income taxes. For example, if $10,000 comes into your life and you pay off a student loan you will have saved on interest payments. Instead, had you parked the $10,000 in a CD the little bit of interest you would have earned would be considered income for tax purposes.
Any one else have frugal thoughts on tax day?