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Kelly Ruggles is the author of "The Financial Playbook" for Retirement.
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Chapter 8- Taxes

Only two things are certain in life: Death and Taxes. Just because you can’t avoid taxes entirely doesn’t mean you have to get taken to the cleaners. There are ways to minimize the bite and hopefully the following will give you some help in doing so.

Structuring property & tax reviews

       Although accountants are a good, if not our best, source for tax advice, they generally are not proactive. You may need to ask for specific advice on how to reduce your taxes. Call your accountant long before the tax time crush and ask for a review of specific ways to reduce your tax.

Have them review:

·     Mutual funds

·     IRA distributions

·     Social Security taxes

·     Ways to increase current income

·     Selling securities and avoiding capital gains

·     Ways to take money from IRAs or pension plans at reduced rates

·     Trusts

Lower your property taxes

       Lowering your property taxes is another way of saving money. Half of residential homes may be over-assessed, but very few homeowners challenge their property tax assessment.

       Three simple steps may help you win your property tax appeal:

·     Don’t rely on their assessment. You can usually obtain a detailed property tax assessment report from your local tax assessor’s office. Look it over carefully for discrepancies. One homeowner saved several hundred dollars when he found his back porch had been listed as enclosed. Other issues can lower your tax such as being located near a noisy street.

·     Check the comparables. The tax assessor’s office can also provide a list of similar houses in the area. Carefully compare them to your home and look for differences that may lower your assessed value.

·     Protest in Writing. In some states, you can send in a form after you receive your property tax assessment for the upcoming year. In others you may need to call the assessor’s office to find out their procedures and deadlines.

Capital gains taxes

Minimizing capital gains tax

         Many investors qualify for a 5% capital gains tax rate. As of this date if your marginal tax bracket is 15%, you are probably eligible for this rate. Even if your tax bracket is higher you may be able to lower your tax for one year and take advantage the lower capital gains tax rate for that year.

Avoiding capital gains tax

       By using various charitable techniques you can often avoid capital tax and receive tax deductions at the same time; however, these techniques must be in place before the sale of an asset.

If you own property or land you no longer wish to own you could donate it to a charitable trust, sell the property tax-free, invest the proceeds and receive income as well as a tax deduction.

         Avoiding capital gains when you sell real estate

       Your Home

The first $500,000 - ($250,000 for a single taxpayer) is not subject to capital gains tax if you sell your home and you have lived in the residence for at least two of the last five years before it is sold.

Other Real Estate

         1031 Exchange

This allows you to transfer one piece of real estate for another. For example, say you own an apartment building, which you no longer wish to own. You can exchange the apartment building for like property, for example, a commercial location. Under a triple net lease, the renters could take responsibility for the property and you would receive a monthly rent check. This exchange is tax-free.

Avoiding taxes on Social Security

It doesn’t seem right, somehow, that you have to pay tax on part of your Social Security income. Depending on your income up to 85% of your benefits can be subject to tax. There are ways to eliminate or reduce this tax. The best way is by deferring income. Deferred income is not included in “Social Security benefit tax calculation”.

For example, if you have investments that are providing income that is not needed, you can defer this income to a latter date.

Deferred fixed annuities and some zero coupon bonds are good sources of tax-deferred income.

Please note tax-free income does not reduce the tax on your Social Security income. It is included for the Social Security benefit tax calculation.

Using trusts

       As mentioned earlier in this book's chapter on estate planning, there are many different kinds of trusts. Several can reduce or eliminate income tax. These include: Personal residence Trusts, Grantor-retained income trust as well as many others.

Again, working with a capable professional is the key to navigating the different planning options available to you and altimetry developing the best strategies for your situation.

Next Chapter: Planning Summary and Conclusion

Financial Concerns for Retirement by Kelly C. Ruggles

©2007, Kelly C. Ruggles | Sitemap | Disclosure | Kelly Ruggles Bio
Kelly C. Ruggles, President of American Reliance Group, Inc., is a registered investment advisor. Mr. Ruggles is the author of "The Financial Playbook" for Retirement.

Mr Ruggles does not intend to provide personalized investment advice through this publication and does not represent that the strategies or services discussed are suitable for any investor. Investors should consult with their financial advisors prior to making any investment decisions.