Forex

1. Contribute to retirement plans.Consider contributing as much as you can afford to your employer's retirement plan. Your contributions are pre-tax and, therefore, reduce your taxable income. You get other long-term tax benefits, too, since earnings grow tax-deferred inside the plan until withdrawn.

You may be able to contribute to a traditional IRA. Eligibility to deduct your contribution depends on your income and whether or not you or your spouse have access to a retirement plan through work. Like a 401(k) plan, an IRA also provides the long-term benefit of tax-deferred growth.

2. Contribute to flexible spending accounts.

A flexible spending account (FSA) allows you to put aside money from your paycheck to cover either qualified health or dependent care expenses throughout the year. (Your employer may offer one type of FSA or both.) Because the funds are deducted from your paycheck before taxes are calculated, you reduce your taxable income for the year.

One thing to be aware of: Generally, you have to use all the money in your FSA by the end of the plan year, though some plans allow for up to a two and a half month extension. To find out the details of your specific plan, contact your Human Resources or Benefits department. In all cases, what you don't use, you lose!

3. Take advantage of favorable capital gains tax rates. ong-term capital gains tax rates apply to investments you have owned for more than one year when you sell. If you have held an investment for 12 months or less when you sell, you pay ordinary income taxes on any profit you make. Since the capital gains tax rate is significantly lower than ordinary income tax rates, consider your holding period before selling an investment. Here is an example of how holding your investments at least 12 months can help you pocket more.


4.Maximize your deductions. You might benefit from itemizing personal deductions on IRS Form 1040 Schedule A instead of taking the standard deduction. The following are some of the expenses that may be deductible when you itemize:

* State and local income taxes.
* Mortgage interest and points, and property taxes.
* Medical and dental expenses that exceed 7.5 percent of your adjusted gross income (AGI).
* Charitable contributions.
* Unreimbursed employee expenses that, in total, exceed 2 percent of your AGI.

5.Consider tax-efficient investments.If you're in one of the higher tax brackets, taxes can take a big bite out of your investment earnings. Fortunately, there are strategies for investors seeking to reduce their tax bill.