| The current recession being the worst since the | | | | been increased demand for these types of bonds as |
| great depression has affected Americans in many | | | | it allows states to raise money much easier. |
| ways. Going forward we are forced to be more | | | | Government Credits- To revive the economy, the |
| cautious on our spending and borrowing habits but be | | | | government is providing plenty of credits and |
| aware that tax policy will be more aggressive during | | | | subsidies to businesses and consumers to increase |
| these times. The United States government has | | | | spending. The current savings rate is about 4% (total |
| implemented plans to boost tax revenues by going | | | | income minus total spending divided by total income). |
| after tax evaders in the Swiss banks, eliminating the | | | | In 2006 it was negative; we were spending more |
| provision for allowing overseas business income to be | | | | than we were bringing in. Some of the current credits |
| tax exempt and by being more aggressive on those | | | | include first time home buyers credit, home energy |
| that aren't current in their taxes amongst other | | | | improvement credits, cash for clunkers, alternative |
| things. | | | | motor vehicle credit, health coverage credit for |
| As a tax advisor, I have come up 5 ways to limit | | | | seniors, adoption credits for expenses involved in |
| your tax liabilities in these tough times. Some of the | | | | adopting a child, earned income credit for low income |
| suggestions, you might have already heard of but if | | | | tax payers, American opportunity credit often called |
| one takes advantages of all these suggestions, you | | | | Hope credit for college related expenses, retirement |
| might be surprised that you could reduce your tax | | | | contribution credits etc. As you can see, there are |
| liabilities by almost 30% on a yearly basis. | | | | plenty of credits available and it is important to note |
| Municipal Bonds (often called munis)- These are bonds | | | | that these credits are not tax deductions which |
| that are sold to state municipalities such as schools, | | | | means that you actually get money in your pocket |
| governmental agencies, local infrastructure such as | | | | for taking advantage of the credit rather than just a |
| airports, seaports etc These types of bonds are | | | | tax deduction. For more information on these credits. |
| more attractive than corporate bonds because their | | | | Unrealized gains- This is a gain that is on paper and |
| interest payments are tax exempt. No federal | | | | has not been exercised. For example, if your stock |
| income tax and no state or local taxes in most | | | | has appreciated by $1,000 on the stock market, it is |
| states. There are a few that are taxed which are | | | | not a realized gain until you sell the stock and take |
| called private activity bonds but there is no need to | | | | the gain. How can this be advantageous? If you |
| have those in your portfolio if you can purchase ones | | | | know that your tax bracket in this year will be higher |
| that are completely tax exempt. All bonds will | | | | than next year, it will make sense to not realize your |
| disclose if they are taxed or exempt so it makes | | | | gain until next year. If you sold it in this year, you will |
| sense to go for the ones that are exempt. The | | | | be paying more taxes than if you held unto it and |
| default rates on municipal bonds are a lot less than | | | | sold it next year. You can find current tax brackets |
| corporate bonds. Although not completely risk free it | | | | on the internet and by planning you are able to take |
| is unlikely that states will default on a bond. You can | | | | the gain and pay less tax. Gains are not only realized |
| find municipal bonds from your broker. As states are | | | | in the stock market, you can have gains in your |
| cash strapped from less tax revenues, there has | | | | home and any other assets that you own. |