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The Unconventional, Procrastinators Guide to Reducing Taxes & Fees

It goes without saying (but I’m going to say it anyways) tax planning is proactive, not reactive so it needs to be done well in advance. But,  we are a country of procrastinators (see the current political budget debate as exhibit A), so I will address a few concepts and “tricks” that may be able to help you out in the last few days and minutes of the 2011 tax season.

1. File an extension. (It’s Free!)

If you aren’t sure send a check to the IRS for a guesstimated amount and get your act together. This way you don’t have to pay the penalties (unless your guesstimate is way off) and you can take your time to work with someone that can help you get the most from the tax code.

2. Plan on paying the penalty.

I think it is elementary school that makes us afraid of penalties, but in most cases the cost of the penalty is less than a loan from the bank, so count the actual cost and don’t be afraid of the word “penalty”. This leads back to rule number one.

3. Pay more, get more.

In case you aren’t paying attention, our tax code is complex, so pay a pro! A CPA may or may not be a pro, they are accountants (the A in CPA) You need someone that knows how to reduce taxes not just “account” or “tax prepare”. It amazes me that people will look for CHEAP, on something that can have such a big impact on their bottom line. Follow the advice of Lucy to Charlie Brown, “Don’t be a Block head.”

4. IRA’s

No list would be complete without the mention of the boring, but effective IRA. Depending on your age and whether you have a plan through work will depend on the effectiveness of this strategy, but don’t over look it, it could knock several thousand of your tab to your, not so favorite, uncle.

5. To ROTH or not to ROTH

OK, this is actually a proactive AND reactive strategy. If in the past you couldn’t contribute, due to a high income, but last year was a bad year consider shifting assets to a ROTH, it is kinda like making lemonade from lemons, therefore a reactive strategy. A proactive strategy is consider consistently contributing to a ROTH (if you can) or doing a ROTH conversion. Conversions were big news last year, because of an anomaly in the tax code, wealthy people could take advantage of a ROTH for the first time, but if your income has dropped, you have retired or you are below the income threshold it might be worth taking a look at this option.

6. Write off “normal” expenses.

Some expenses you have to pay anyway, like interest on a mortgage, so if you can write them off too, it is a bonus, here is a very short list of a litany of things you might be able to deduct, health insurance, health expenses,  financial management fees, home office (not the red flag it once was), mileage, vacations (tricky, but legal), long term care insurance premiums, college, non-cash donations, and the list can go on.

7. Avoid don’t Evade

Avoidance is using the tax code as it is written, Evasion is making up stuff or doing something the code isn’t clear about. The actor Wesley Snipes is in jail for this mistake.

8. Plan now for next year!

Since it is on your mind, map a strategy for next year. You’ll save far more money in the long run, you will be less stressed and you won’t need to read an article like this one at the last minute!

If you are asking what makes these suggestions unconventional, youwill note not a single number was mentioned, I’ll leave the details to a bean counter, because what truly matters are the concepts.

—John Pollock

Click here to watch the video The Unconventional, Procrastinators Guide To Reducing Taxes & Fees