You deserve to pay less Federal income taxes. Actually, it's your duty to pay less. The tax law is there for a reason. To collect money to run the government, but also to reward behavior that lawmakers deem worthy of tax benefits. So, take advantage of the tax law's loopholes whenever you can. Here are some tried and true methods for avoiding (not evading, that's illegal) taxes at the Federal level:
Sell Off Non-Performing Stock At A Loss:
Especially if you are facing a gain from the sale of stock in the current year, you should look at selling other stock that hasn't performed well at a loss, so as to offset the gain on the sale of the stock that went up in value.
Remember, there are limits on capital losses from the sale of stock, except when applied against gains from stock. So, you can just unload stocks and get tens of thousands in write-offs in any one tax year. But offsetting gains from stocks sales is a great way to reduce income, and thus taxes.
You can always buy a stock back after it's sold, provided you wait at least the minimum number of days (currently 30) so as to avoid the IRS wash sale provisions.
Perform "Income Shifting" Pay Your Children:
Your minor dependents are allowed to work for you. If you are in a much higher tax bracket than your children would be if they earned money working for you, then you are ahead by the delta (difference) between your effective tax rate and theirs. Small business owners use this tactic all the time to reduce taxes, and also teach discipline and money-management to their kids.
Give More To Charity:
This can be cash, or "in-kind" giving of personal property. It's possible to donate an asset that has appreciated in value (particularly collectibles)...just watch the limitations. Cash is 100% deductible, up 50% of your adjusted gross income, with any access available for carryforwards over the next 5 years. Appreciated property is limited to 30% of adjusted gross income (check the current law, however - it changes on a dime sometimes)
Roll Over Your IRA Or 401k:
leaving a job can be traumatic. Don't add insult to injury by getting hit with the penalty for not rolling your retirement plan into a private IRA or a new plan. The penalties are severe and it makes little sense to suffer them. You might also use the opportunity to consider converting your account to a POST-TAX retirement account, where the distributions when you retire are tax-free. Check out Roth IRAs and related accounts for this recent (approximately the turn of the millenium) IRS development. It will cost you a penalty to make the switch, but may provide 10's or even 100's of thousands in tax-free distributions when you retire. It's always worth a look, in any event.
