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Plan Ahead to Reduce Your Taxes Following ideas may help you reduce or at least postpone your taxes 1. Postpone Income to next Year Especially helpful if self employed. Postpone your invoicing until January thus moving income to next year 2. Shift Income and Deductions Pushing income into future years where the tax bracket is lower. Same with deductions but shifted to years where the tax bracket might be higher 3. Group the Itemized Deductions Also try switching between itemizing and taking the standard deduction 4. Contribute to an IRA or some Pension Plan 5. Use tax-free investments 6. Donate Highly Appreciated Stock Try Donating the stock instead of selling 7. Consider Filing Separately Usually is worth filing separate when one spouse has significant itemized deductions and less income than the other. 8. Shift income to Children Where possible shift income using gifting or hiring them in your business 9. Maximize Charitable giving 10. Educational Credits for College Two credits available: Hope Scholarship and Lifetime Learning. Both are available for payment of qualified tuition and expenses 11. Installment Sales Using an installment sale to defer capital gain income into future years may help you reduce the burden by spreading gain over several years. If you still owe there are several methods to pay your tax amount due. 1. Electronic OptionsElectronic payment options. You can make payments online, by phone using a credit or debit card, or through the Electronic Federal Tax Payment System. 2. Installment AgreementsIf you can’t pay all or some of the taxes you owe, you can apply for an installment agreement. The agreement allows you to pay any taxes you owe in monthly installments. If you owe $25,000 or less, you may apply for a payment plan electronically, using the Online Payment Agreement application. You must show the amount of your proposed monthly payment and the date you wish to make your payment each month. The IRS charges $105 for setting up the agreement or $52 if the payments are deducted directly from your bank account ($43 for qualified lower-income taxpayers)The IRS will automatically give you the low income installment agreement fee if you qualify; you do not have to request it. You are required to pay interest plus a late payment penalty on the unpaid taxes for each month or part of a month after the due date that the tax is not paid. If you don't pay all or some of the taxes you owe by the deadline, you could face interest on the unpaid amount and a failure-to-pay penalty. The failure-to-pay penalty is equal to one half of one percent (.05) per month or part of a month, up to a maximum of 25 percent, of the amount still owed. The penalty rate is cut in half — to one quarter of one percent (0.25%) — while a payment plan is in effect. Interest and penalties add to the total amount you owe.
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