Federal Taxes - Minimizing on Taxes: Practical Investment SchemesTip! Donate your
Thursday, April 12, 2007
Minimizing on Taxes: Practical Investment Schemes
Taxpayers can either be small-time investors working in various sectors or big investors like businessmen who have a big source of income. The aim of both of them is to minimize tax payments. Tax planning entails investing in the right schemes at the right time.
You are a successful investor if you know what are the objectives of your tax planning, and you further go ahead realizing your objectives by carefully planning in the right schemes. Some of the common and most practical investment schemes include:
A. Not Very Famous Category of Investment among Investors.
1. Tax-saving mutual funds.
2. Bank Investment schemes.
These investment schemes are at extreme ends of the risk-return spectrum.
B. Very famous category of investment among investors.
1. Infrastructure bonds.
2. Private Investment schemes.
These investment schemes fall under the purview of fixed income instruments, and bypass the unnecessary tax burden.
Classification of Tax Paying Categories
Age is considered as the standard criteria for classification by the investment community. It is generally felt that low age yields maximum risk factors owing to less experience, whereas high age yields less risk, because one is more experienced.
Following are the broad categories of listing taxpayers according to their age:
A. 25-35 years of age - If you fall within this age group, then you are young, and may or may not be married, be with or without kids. If you are the only breadwinner of the family then getting insured is the most feasible option that you should think of. This is because if anything happens to you, your family will be in a comfortable position to sustain their living in your absence. A tax-saving mutual fund (ELSS) fits well into your risk profile and you can avail investing option of up to $10,000 limit. You can also invest in property on a home loan and get a tax benefit on the same under Section 199.
B. 35-45 years of age - At this age, tax-saving funds, having $ 10,000 limit (for claiming tax benefits), are a very practical option. This is the age where you plan for your future.
C. Over 45 years of age - At this age you are within the age of retirement, so your entire focus should be on pension policy. In addition, your investments need to be more retirement-oriented.
Thus, with this piece of information at your disposal, you can surely earn rich benefits by saving your income to the maximum.
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Federal Taxes - Health Savings Accounts and TaxesTip! Employ family members.
Wednesday, April 11, 2007
Health Savings Accounts and Taxes
HSAs have a "triple" tax advantage from a federal tax standpoint. Individuals receive full tax advantages for HSAs on their Federal Income Tax return (or through a salary reduction program in certain employer-sponsored settings) regardless of particular state's tax treatment of HSAs.
An account beneficiary may take an above-the-line deduction (i.e. the amounts may be used to determine the individual's adjusted gross income before any itemized or standard deductions are considered) for contributions made to an HSA during any month of the individual's taxable year that the individual is eligible. The permitted deduction cannot exceed the sum of the "monthly limitations" for such months. In 2006, the monthly limitation for any month is 1/12th of the following amounts:
- For those with single coverage on the first day of the month, the lesser of the annual deductible under the HDHP or $2,700.
- For those with family coverage on the first day of the month, the lesser of the annual deductible under the HDHP or $5,450.
Funds in an HSA grow on a tax-deferred basis, and distributions from an HSA are tax-free so long as the funds are used for qualified (as defined by Section 213d of the IRC) health care expenses.
How does state tax treatment of HSAs differ from federal tax treatment?
HSAs (and the enabling legislation) are federal. As a federal program, each state decides whether to: a) comply with the federal guidelines, or; b) establish their own state guidelines regarding the tax treatment of HSAs. As a result, some income that may be tax-free at the federal level may not be tax-free at the state level.
Many states harmonize their tax treatment with the federal government. Those states include Arizona, Arkansas, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Iowa, Indiana, Kansas, Kentucky, Louisiana, Maryland, Missouri, Mississippi, New York, Montana, Nebraska, New Mexico, Oklahoma, North Carolina, North Dakota, Pennsylvania, South Carolina, Oregon, Rhode Island, Virginia, Utah and Vermont.
Other states, however, treat HSAs differently from the federal government, at least for tax purposes. The following states have indicated that legislation must be passed at the state level before HSAs receive a tax benefit at the state level: California, Illinois, Maine, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, Ohio, Washington DC, Wisconsin, West Virginia and Tennessee. New Hampshire and Tennessee do not tax income, but do tax dividends and interest. Alabama has not indicated their position regarding state-level tax benefits for HSAs. Finally, some states are not affected by federal income tax guidance vis-�-vis HSAs: those states include Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.
Kurt Stammberger is VP, Marketing at Healthia Inc. Healthia provides integrated comparison-shopping information on health care products and services, doctors and health insurance plans to empower the drive towards Consumer-Driven Health Care.
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