Federal income taxes are fairly straightforward for most individuals during their working years. In a progressive income tax system like ours, you pay taxes at a certain rate. Once your income exceeds the top tier of that rate bucket, the next dollar you earn is paid at a higher rate.
5 Ways to Lower Your Taxes Before 2020 Is Over
As we anticipate the final quarter of 2020, this has certainly been an unusual year in many, many respects. Two substantial laws were signed into law that impacted the taxes of nearly every American: The SECURE Act and the CARES Act.
Between the implementation of these two laws and existing rules already in place, there are several tax-saving strategies that come to mind which families should consider taking advantage of before the end of the year.
How Does Saving For Retirement Actually Lower Your Taxes?
One of my favorite tax breaks is contributing to a tax-deferred account, like a Traditional IRA, SEP-IRA or SIMPLE IRA. Contributions to these accounts lower your taxes when the contribution is made, and allow you to defer (postpone) owing taxes on those contributions until retirement.
But I fear in the past I’ve given this same advice on my blog without thoroughly explaining how and why this actually works.
In today’s post, I’d like to answer two questions:
How exactly does contributing to a retirement account mean lower taxes today?
Why does that matter if taxes are still owed later?
Roth Conversions Are Amazing. Here's How They Work.
Roth IRAs have made a good run in their relatively short 23 year history. I join with millions of Americans in celebrating the fact that there is an instrument like these allowing workers to save and grow their after-tax dollars and never pay taxes on them again. It’s fitting that the creation of the Roth IRA fell under the Tax Relief Act of 1997.
Roth IRAs have many advantages (which I’ll highlight again); but what I’d really like to dive into is something called a Roth Conversion--where you convert traditional IRA funds into Roth IRA funds.
A New Law Just Made IRAs and 529s a Little More Interesting
As last year’s U.S. Congressional session approached the Christmas holiday, a little known bill called the SECURE Act was once again teetering on the edge of failure. However, at the last minute it was tacked onto the year-end appropriations bill in order to keep the government funded. Just like that, a new series of financial rules and requirements impacted millions of American’s financial lives, though most don’t even know about it.
Following is a brief rundown of the SECURE Act’s 1,000+ page rule, with a focus on the areas that I feel would most likely impact you.