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How to cut income taxes.


Now that you have filed your 1991 tax return (or soon will), reducing the size of your 1992 tax bill is likely to be one of your top priorities this year. Are you missing out on tax-saving opportunities? Check the following ideas with your tax advisor. Then determine which of them might be appropriate for your financial situation.

Retirement Program for the Self-Employed

An individual with self-employment

income may establish a

qualified retirement plan--in addition

to a tax-favored IRA--and reduce

taxable income in an amount equal to

the contributions, as well as defer

taxes on all income earned by plan


Tax-Deferred Annuities

Fixed and variable tax-deferred

annuities are both outstanding

vehicles for faster money growth,

through the deferral of current income

taxes, and the potential for guaranteed

life-time income. With a tax-deferred

annuity, you normally pay no Utah or

local income tax on the interest

earned until you decide to receive

income from your annuity. If

distribution occurs during retirement,

you may be in a lower tax bracket.

Deferring Income with Treasury Bills and CDs

If a large sale of stock or other

property, retirement distribution, or

unexpected income has placed you in

a higher tax bracket this year than

you will be in next year, you can

realize tax savings by deferring

receipt of additional investment

income until next year when you

expect your tax bracket to be lower.

This may be done by purchasing a

Treasury bill or short-term CD that

will mature after the conclusion of

the tax year. At maturity, the income

will be taxed at what could be a

substantially lower tax rate.

Tax-Exempt Investments

Investing in quality municipal

bonds is a prudent way to earn high

after-tax income, while easing your

current tax burden. The appeal of

"municipals" generally increases as

your tax bracket rises.

Growth-Oriented Investments

Growth-oriented investments, such

as common stocks, provide the bulk

of their return in the form of

appreciation rather than current

income. Since little or no current

income is generated, investing in such

assets can be an effective method to

save on current income taxes.

Gift Tax Exclusion

The $10,000 federal gift exclusion

enables you to give away that amount

in cash or property each year to as

many individuals as you like, free of

gift tax. In appropriate situations, the

gift tax exclusion can be an effective

tax-saving strategy.

Gifts to Minors

While the annual gift tax

exclusion applies to donees

regardless of age, a Utah law

known as the "Uniform Gifts to

Minors Act" or the "Uniform

Transfers to Minors Act" allows

annual gifts to be made to a

minor's account. The minor

cannot legally demand possession

of these funds until the age of

maturity is reached, but the gift

still qualifies for the $10,000

annual gift tax exclusion.

Rollover of Qualified Plan Distributions

A lump-sum distribution from a

qualified retirement plan may be

rolled over tax-free into an IRA. This

permits the recipient to postpone

taxation on the distribution until it is

withdrawn. All capital gains and

income earned on those funds

continue to grow tax-deferred until

withdrawn from the IRA.

Corporate Retirement Plans

Many options are available to

Utah corporations when selecting a

retirement plan for its employees.

Substantial tax-deductible

contributions may be possible.

Additionally, the plan's capital gains,

interest, dividends, and other income

are not taxed to the plan's

participants until distributed. Further,

lump-sum distributions from

corporate retirement plans may

qualify for a special lower federal tax

rate, or be eligible for tax-free

rollover into an IRA.

Salary Reduction Plans

Many Utah employers now offer

salary reduction plans to their

employees. These plans offer

participants an opportunity to defer

receipt of a portion of their salaries

until a later time, which creates a

number of tax benefits. First, since

the deferred salary is not included in

the employee's current income, it is

not taxed until withdrawn, which will

likely be after retirement. In addition,

the income earned on the deferred

salary is also exempt from current


To learn more about ways to potentially save on your taxes, consult your tax professional.

Jessica Satterfield is an account executive with Dean Witter Reynolds.
COPYRIGHT 1992 Olympus Publishing Co.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
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Title Annotation:business taxes
Author:Satterfield, Jessica
Publication:Utah Business
Date:Feb 1, 1992
Previous Article:Pacs, pics and politics: business at the legislature.
Next Article:"Move right in." (Utah business climate)

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