Re: Reduce Tax liability
posted at 6/14/2013 6:25 AM EDT
In response to jjames555's comment:
We are a family for 4 and our income last year was 175k. We paid a total tax of 51k ( fed+ State + SS )as we have nothing much to deduct. We are renting a 2 BD apt for 2600 a month since we cannot afford a house, which in our neighborhood starts at 600k for a fixer up. We also cannot move away from this neighborhood because of the good schools.
What options we have to reduce our tax liability ?
( we are contributing the max to 401 k)
Unfortunately, there is nothing easy or inexpensive that would allow for reduction of your tax liability. There are a limited number of investments that would allow you to claim tax deductions or credits to offset your income or tax liability. They would typically require that you either earn more than you do or have a net worth amassed that would permit you to afford to buy your home, rather than rent it. In addition, such investments carry with them a degree of risk that would not be compatible with the level of financial security that you presumably desire for your family. It may sound impossible, but your best bet is to try to accumulate enough to afford to buy a home (house or condo). If you can find a situation where you could arrange a "rent to own" with the property owner or if the seller would act as the bank to finance your purhcase of their property (a purchase money mortgage, where the seller holds the mortgage), until you build enough equity to seek a bank provided mortgage, you will likely have a more secure investment, with tax advantages (absent a change in the tax law), than any other tax-advantaged investment. While the schools may be good within your current locale, there are any number of other towns/citites in Massachusetts that provide a good eductation and you may need to widen your area of acceptable home sites to be able to afford a purchase that meets your standards of affordability and quality for the money asked.
Hope this helps in preparing your returns and your perspective on "tax shelters"!
Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal
Katz, Nannis + Solomon, P.C.