Boost Your Income: Lower Your Tax Bill

Part One of our three-part series on boosting income explored ways make more money at work. Now that you've kicked up your salary, you'll want to keep as much of your income as possible out of Uncle Sam's hands.

Taxes eat up a large chunk of your employment earnings. If you're in the top 35% marginal bracket, you typically keep just 68 to 73 cents of every dollar you earn. Your investment returns also are vulnerable to taxes, which can have a huge impact on your money's growth over time.

Indeed, taxes swallowed nearly 15% of the average U.S. diversified equity fund's gross return during the 10 years through 2006, according to a Lipper study.

"Those are big numbers," says Rick Shapiro, a managing member of Investment and Financial Counselors in West Hartford, Conn. "The key isn't just returns but after-tax returns. How you deal with your taxes can make a big difference to your bottom line."

As always, it's a good idea to check with your accountant or tax adviser on tax matters. That said, here are some strategies for limiting your tax bill and boosting your after-tax income:

Maximize Deductions

As tax law becomes more complex, claiming all available deductions becomes more difficult. "People miss all kinds of deductions," says Shapiro, who is also a CPA with a master's degree in taxation. "They can really add up."