On this Tax Day 2014, ask yourself this question, Capital Region residents: Do you have a job? Then you have a tax problem! The harder you work to get ahead and build your income, the more taxes you pay. In order to have the maximum cash at retirement, you need to find a way to minimize taxes.
Using the concept of “paying yourself first” you can invest money you’ve earmarked for your long-term goals through a tax-deferred retirement account. This allows you to postpone paying taxes on your earnings. That means more money is allowed to compound and work for you than if income taxes were taken out of each year’s earnings.
Deductibility vs. deferrability
- A deduction is an amount of money you can subtract from your gross income before you calculate taxes. The more you can reduce your gross income with deductions, the less the amount you’ll pay income taxes on. It PAYS to deduct. Remember to consult your tax advisor regarding your personal tax situation.
- A deferral means that you can “postpone” payment of current taxes until a later date in the future, commonly at retirement. The great thing about deferring taxes to retirement is the likelihood that you will be in a lower tax bracket when you do have to pay taxes on the money.
We can't, realistically, change the IRS in the short-term. What we can do is build our own IRA (Indvidual Retirement Account) for the long-term.
Dave Balog teaches Capital Region families about money essentials. firstname.lastname@example.org; 355-0967.