Catherine M. Censullo CPA
One Minute Tax Tip


DID YOU KNOW THAT YOU CAN DERIVE TAX BENEFITS FROM USING THE POWER OF PAYING YOURSELF FIRST?
         

It seems like expenses just keep going up and up.  Do you feel that way, too?  I sometimes have an unexpected expense arise that just wasn't in my budget.  Does that ever happen to you?

And unless you plan carefully, don't you find it becomes even more difficult to put money away for yourself?

You probably already know that financial advisors usually recommend that you save anywhere between the equivalent of three to six months of your earnings to keep in cash for emergency situations you may encounter.  Your car might break down, you might have an unexpected medical or legal expense, such as the dental expense my husband just had for a broken tooth, or some other unexpected event. 

By paying yourself a small amount from each paycheck, whether it be five percent, ten percent, or fifteen percent of each paycheck, you can accumulate this emergency savings fund that will prevent you from having to borrow money to pay for those unexpected expenses.

OK, maybe you get that, but you may be thinking, "How am I going to use that money to save on taxes?"  Well, here are two ideas you may not have thought of.

You could use some of that extra money to pay the taxes on converting your regular IRA account to a Roth IRA account.  This would convert your tax-deferred retirement savings into tax-free retirement savings that can continue to grow tax-free.  Or you may be able to invest some of that money directly into a Roth IRA account or an IRA account that is immediately converted to a Roth IRA.  Wouldn't it be nice to not have to share those extra earnings with the government?

You could also use that extra money to buy life insurance.  Life insurance proceeds are not subject to income taxes.  Why not leave your money to heirs that is tax-free, not just tax-deferred.  Do you think you heirs would prefer that?

In the current environment of rising taxes, this will allow you to move some of your cash into tax-free territory.  That way you can enjoy the use of tax-free money and so will your heirs. Do you like that idea?

If you need some help thinking through these strategies, call the office at 914-997-7724 and set up an appointment to discuss this in more detail.



 
   
  

Catherine M. Censullo, CPA
914.997.7724
catherine.censullo@cmcensullocpa.com

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