Lowering Your Income Taxes

Go green! By making your house more energy efficient, you can take advantage of government tax breaks for energy-efficient devices. Whenever you shop for new appliances, keep in mind that some Energy Star devices carry a tax credit. Not only will going green reduce your environmental impact, it'll also reduce your energy costs as well as your taxes. You practically can't afford not to be energy efficient!

Consider getting a mortgage. One of the biggest opportunities for tax savings comes in the form of home ownership. You can deduct your mortgage's interest from your tax; an especially good deal when you consider that most of your first few year's payments will go to cover the interest on your mortgage. Second mortgages aren't usually a good idea unless you're getting one to help pay off existing debts for which the interest is not tax-deductible (such as credit cards or car loans.)

Save for retirement. While most people realize that it's important to save for retirement, few realize the potential tax benefits that can be realized by putting away for your retirement. When you save money for retirement, you're reducing your taxable income, specifically your adjusted gross income, by the amount you save. Not only is saving for retirement the sensible thing to do, it can also help lower your tax bill!

Invest your rebates. While not technically a way to reduce the amount of money that you pay to the government, investing any tax rebates you may receive is nevertheless a smart policy. Since it's money that's already been paid, it should be a more or less "free" investment as far as your budget goes; when you check your portfolio years later, you'll be glad you made a solid investment with your tax rebate.

Deduct your child tuition. If you have college-age kids, don't forget to deduct their college tuition from your taxes. While you can't take advantage of this deduction if the tuition money is coming from a tax-free savings account (such as a 529 plan), you can deduct tuition paid out of pocket. Even if you don't have a kid, remember that any classes you take can result in a tuition deduction.

Sell poor stocks. If you're like most Americans with a stock portfolio, you've got a few stocks that, while not doing terribly, aren't doing terribly well. If a stock's worth far less now then when you bought it, it's probably a good idea to sell it. Stock losses happen to be tax deductible, whereas any stocks sold for profit incur capital gains tax. If it's not making you any money anyways, why not let go of it and get a neat deduction on money already spent?

While you shouldn't make any major financial decisions without first consulting with the appropriate financial experts, this article provides several good starting points to consider when evaluating how best to reduce your income taxes.