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Six Tax Moves for $10,000

Jennifer Openshaw

So that's two extra days to make sure you're getting every tax break you're entitled to, and to think creatively about how to position yourself for next year

OK, so that's the last thing you're doing. Then I'll do the work for you.

I've racked my brain, trying to find some key moves that will keep more money in your investment portfolio. These tax strategies are easy to implement, and each one is aimed at garnering $1,000 or more.

So here are my six Millionaire Zone tax moves that added together could keep $10,000 in your pocket.

1. Money Management, Job-Related Expenses

Too many people make the mistake of ignoring all the little expenses related to producing income.

This includes looking for a job, tools to be successful in your current job and even managing your money.

I keep telling them, "No, you don't have to be in business to deduct the costs of making a living." These and other miscellaneous expenses do need to add up to 2% of your adjusted gross income, but it's easier to get there than you'd think.

The miscellaneous-expense deduction is a catchall for an array of tax-deductible expenses, including unreimbursed business expenses. These include everything from subscriptions to industry magazines to memberships to professional organizations.

And if you or your spouse has been looking for a job, it includes travel costs (gas, airfare), resume photocopying and postage.

Also, if you or your partner works from home, the computer, furniture, Internet and phone expenses may all be deductible.

Don't forget: Expenses related to producing income or managing money may qualify. These include fees for your money manager or financial adviser, getting your taxes prepared, the safe deposit box -- even subscriptions and trade association memberships.

On a $60,000 household income alone, you can easily keep $1,000 in your pocket, assuming total annual expenses here of about $4,000.

2. Cool College Breaks

Would you believe that some 25% of Americans fail to take advantage of college-related tax breaks?

Remember, you don't have to have a teenager to get any of myriad college tax breaks; they can also apply if you or your spouse is attending college or even just taking carpentry or cooking courses part-time.

As an example, a family with a household income of $60,000 with a child in college and another in graduate school can pocket more than $3,000 a year with the Hope Credit (a per-student annual credit for the first two years of higher education), deducting interest paid on student loans and deducting tuition and fees for the graduate student.

The tax-advantaged college savings plans, known as 529 plans, can also boost your savings. With one of these accounts, by my calculations, you could earn $12,000 more in 15 years than you could in an equivalent taxable brokerage or mutual fund account (assuming 8% earnings per year with $2,000 in annual contributions).

And remember, even if you're getting hit with the alternative minimum tax, these are credits that, unlike many others, still apply.

3. Saving Health Care

Congress has finally put more oomph behind health savings accounts, making them a useful tool whether you're an employee looking to save on medical costs or a business owner looking to attract talent.

Like 401(k)s, HSAs allow you to set aside pretax money to pay for qualifying health care expenses, from co-payments to eye care. But HSAs must be tied to a so-called high-deductible health plan -- that is, a health insurance policy with minimum deductibles of $1,100 (individual) or $2,200 (family) for 2007.

In the past, if you participated in an HSA, you could contribute and deduct only the amount up to your actual deductible. Now, all participants get the full limit, up to $2,850 a year for individuals, $5,650 a year for families.

So if you elect a high-deductible health insurance plan, you can deposit an amount equivalent to that deductible in a personal HSA.

For instance, if you have a $4,800 deductible and file as married filing jointly, you can deposit that amount in your HSA and deduct it from your taxable income. That could save you $1,680 in taxes each year.

4. Tax Benefits for Stay-at-Home Spouses

Even if you've got a spouse at home, he or she too can be saving through an IRA called a spousal IRA. This is often forgotten, because the rules for a traditional IRA require that the IRA owners earn at least as much as they deposit each year.

You can save up to $4,000 for a stay-at-home spouse (subject to some income limits) and deduct it from your taxable income -- and, if they're over 50, even more. Still, that deduction alone could easily cut $1,400 a year off your tax bill.

5. Nine-to-Five Family

If you're one of the millions who are self-employed or running your own business, you need to know about some creative money moves.

Let's say you need help with your computers, filing or dealing with the back office. Have you ever thought about hiring your kids? You can.

You can hire your kids, pay them and fully deduct the payment from your business income. Even if you pay your two kids $150 a month, your annual tax savings would run close to $1,300.

What's more, you're keeping your business earnings within the family, and you get to deduct what you might have just given to them anyway. You're free of any tax implications so long as they earn less than $4,750 annually.

By the way, think broader than just your kids. I rely on my mother to manage my real estate properties. That enables her to deduct everything from her gas to her cell phone -- even a meal -- as long as these expenses are "necessary and ordinary" (as the IRS puts it) to the business.

6. Goodbye, Plastic

My final move really applies to families carrying debt. Let's say you're the typical family carrying the average $13,000 in ongoing credit card balances.

If you were to refinance that 19.2% credit card debt with a home equity loan at a 7.5% interest rate, you could save just over $1,500 in interest costs. And, since in some cases that interest is deductible, you could save another $532 in taxes, which would bring you more than $2,000 in annual savings.

One important caveat: Many people who use low-interest debt to pay off credit cards end up with more debt in the long run because they don't curtail their spending. And there is a cost to refinancing, so it generally only makes sense if you plan on staying in the house for several years or more.

Can't take these deductions this year? Plan your finances to take them next year. Either way, remember that income limits do apply to some of these tax moves.

If you aren't sure how to use these ideas, consult a professional adviser. The rules can be complex. The fees spent may well be worthwhile -- and they may even be deductible.