Deferral of Income
Another tax tip to help reduce tax liability in a given tax year, is the deferral of income, interest and investment gains. By deferring earned income or taxable interest and investment gains from the current year into the following year, you can reduce your taxable income base. The taxpayer might have had a high earning year in the current year and expects the upcoming year to be much less, so any type of income deferral would be helpful in this scenario.
Tips to defer taxable income to the next year:
- Realize taxable investment gain in the following year, take losses now
- Buy Treasury bills that come due next year (interest pays at maturity)
- Defer employer compensation
- Buy I bonds or Series EE bonds (interest pays when bond is cashed)
- Invest in tax deferred accounts (IRA, Roth, annuities, etc…)
- Buy investments that pay tax-exempt interest (public muni bonds)
- Invest in savings certificates after June 30 with maturities of six to 18 months
- Utilize tax-free exchanges
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