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How to Pay Income Taxes, Part 2 |
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Every November, project the amount you'll pay in income tax instead of waiting until April when taxes are due.
Avoid surprises that can show up when you only examine your tax situation just before the April 15 due date. Rather than looking through a rear-view mirror in April, look ahead in November at what you'll owe. This gives you time to carry out strategies such as changing your withholding and tax payments, selling securities so you can take advantage of capital gains or losses, or purchasing needed tax-deductible items before year-end.
Contribute to your 401 (k) plan or other workplace savings plan to reduce your income taxes.
If your debt is under control, and you're ready to start investing, consider using your employer's retirement savings plan such as a 40i(k), 403(b), or 457 plan. You can likely achieve diversification using mutual funds or similar investments that are commonly available under these plans. Some employers will even match a part of your contribution. In addition to increasing your savings, you'll reduce your current taxable income, which, in turn, reduces the amount of federal (and possibly state or other) income taxes you'll owe.
If you run a business, full-time or part-time, always report your earnings to |
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