Here are five ways to cut your income tax bill this season

By Richard Wagner

For the Deseret News

Published: Thursday, Feb. 21 2013 7:00 a.m. MST

Some people try to rein in their budget and save money by clipping coupons, cutting down on the number of times eating out, buying a cheaper off-brand at the grocery store, or buying a fuel efficient vehicle.

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Think quickly … what is your single largest expense? For many of my clients, their largest expense is taxes. Some people try to rein in their budget and save money by clipping coupons, cutting down on the number of times eating out, buying a cheaper off-brand at the grocery store, or buying a fuel efficient vehicle.

When I was chief financial officer and we needed to save money in our corporate budget, we would look first at the largest expense items, see what we could cut there, and then work our way down through smaller expenses. A 10 percent reduction in our largest expense was much more beneficial than even a 50 percent reduction in our smallest expense.

So if taxes are one of your largest expense items, may I suggest putting real quality time and resources into reducing that expense first. I don’t suggest letting the tax tail wag the dog, but if you can reduce your largest expense item by 10 percent, it is probably worth more to you than skipping a night at the restaurant here and there.

Tax idea 1 — retirement planning

Our country needs self-sufficient retirees who can provide for themselves, and the government provides generous incentives to do so. If you don’t take advantage of these incentives — this free government money — you cannot go back later and claim these funds. We have shown many people how to save hundreds of thousands of dollars through pension planning, and several of these clients had previously been told that their pension plan contributions were already maximized.

Get a second opinion on your pension planning from a proactive planner or if you don’t have a pension plan, consider starting one. This one area could possibly be the biggest contributor to your tax savings and financial security.

One of my clients asked, “I could have been saving around $100,000 per year for the past decade?” Sadly, this was the case, and once the years have passed it is difficult or impossible to go back and get those tax dollars.

Although some pension planning ideas are available after the end of the year, the majority require action before the last day of the year. If you missed the boat on this one in 2012, there is always 2013.

Tax idea 2 — standard deduction for itemizers

Ever wonder what the standard deduction is for? Even those who pay no property tax, mortgage interest or charitable contributions still get the benefit of the standard deduction. You may be paying $12,200 in itemized deductions and the guy next door may be paying $0 in itemized deductions, yet you both get the same write-off.

Well, here is your chance to get more of your fair share of this benefit. We have had success with clients grouping all of their itemized deductions for two years into one year, and then taking the standard deduction in the other year.

Some itemized deductions are difficult to move, and in some cases you may not pick up the entire $12,200 increase in deductions, but even if you pick up two-thirds that amount and you are in the 25 percent federal and 5 percent state bracket, that could mean an additional $2,400 in your pocket every other year! Say this process takes a couple of hours of your time to implement — that is a cool $1,200/hour in tax savings … not bad!

Tax idea 3 — liberate passive losses

I had a client with several years of suspended passive losses that looked like they might never get to be deducted. This is because you can only deduct a passive loss against passive income. Here are a couple of ideas to liberate those suspended losses, either reduce the passive loss by shifting expenses to a category that can be deducted, or generate passive income.

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