Most people find the landscape of the tax code treacherous at best. Indeed, the terrain is unstable. Tax laws change on an almost constant basis. Rules like “phase outs” that take away deductions after a certain income level along with the Alternative Minimum tax add further obstacles to understanding how to plan for the future. However, there are some tried and true tax planning strategies that anyone, at any income level, can take advantage of. Here are a few:

1. Always contribute the maximum amount every year to your 401K, (retirement savings plan). All contributions are tax deferred and many companies have a matching program which equates to FREE MONEY! Who doesn’t love free money?

2. Consider spousal Individual Retirement Account’s (IRA’s), and/or maximizing your deductible contribution to an IRA. Contributions can be made to an IRA and deducted on your return as long as they are made by the due date of your return. Therefore, your tax preparer can determine your maximum deduction while compiling your return and if you are lucky enough to get a refund, you can use that to offset your IRA contribution.

3. If your company offers a “cafeteria plan” you should consider participating at maximum allowable levels. Cafeteria Plans are a type of employee benefit plan that allow participants to choose from a variety of benefits. Contributions to cafeteria plans are generally taken out of your payroll as pre-tax deductions and are not usually subject to Social Security and Unemployment taxes. Examples of benefits often available in a Cafeteria Plan include group-term life insurance, flexible spending accounts, and health care benefits.

4. Charitable contributions are a great way to lower your tax liability and feel good at the same time. Keep all your receipts in a file for the year and remember you are also required to obtain evidence of non-cash donations. This is an area of increasing audit attention. Make sure you have documentation for you donations.

5. Does your company offer equity compensation, (stock for example)? Asking for equity as a portion of your compensation or bonus compensation instead of cash may defer taxable income as long as there is a qualified plan in place, (your company can tell you if they have a qualified or non-qualified plan).

6. Energy efficient home improvements may offer rebates as well as tax credits or deductions. If you are considering any projects, look at state and federal websites to determine if you are eligible.

7. Planning to go back to school or saving for your child’s education? Use a tax deferred plan such as a 529 Plan. Contributions to 529 education plans are NOT deductible; however the money (both principal and interest) comes out tax free as long as the beneficiary is attending a qualified secondary education program. The accounts can also be rolled over to another beneficiary. Therefore if you are fortunate enough to have a full scholarship for one of your children, their savings account can be rolled to another of your children or saved and eventually rolled to a grandchild.

These tax planning tips are adapted from a blog published by Carolyn Flaherty on Pavento, Ratcliffe & Renzi, LLC’s blog. The site provides great tax tips and accounting information from other CPA’s as well.