You can make up a lost tax breakPublished 5:26pm Thursday, April 21, 2011
By JEFF WATERS / Guest Columnist
Did your dependent — as determined by the Internal Revenue Service — become independent?
If so, you probably lost a good-sized tax deduction. But there are other ways to help make up some or all of the lost deduction.
-Contribute more for retirement — If you have a 401(k) plan at work or qualify for other tax-deductible retirement accounts, such as a traditional IRA, consider contributing as much as the accounts allow. Remember that income would have been taxed if you didn’t contribute it to a tax-qualified plan. So if you’re in the 30 percent combined tax bracket, for instance, you’re really only contributing the 70 cents that would have gone into your pocket after taxes.
-Pay credit cards before mortgages — If you have a first or second mortgage, the interest payments you make each year may be tax deductible. Not so for credit card interest, plus the latter’s rate is probably higher. Consider paying off your credit cards before paying extra toward a first or second mortgage.
-Buy green products — Depending on where you live, you may qualify for tax deductions or tax credits by purchasing certified energy-efficient products. Everything from a new burner to longer lasting light bulbs may qualify.
-Do good — Theoretically, you have extra money – minus the lost tax deduction – when your dependent becomes independent. You might use some of that extra money to benefit a favored charity or organization, and gain a tax deduction in the process.
-Consider life – Life insurance with the potential for cash value accumulations may fit your needs nicely. Talk to your financial professional to learn more.
Jeff S. Waters is a financial adviser at Waters Wealth Strategies. He can be reached at 358-7126 or by email at email@example.com.