The IRS to determine what part of your income is to be paid in taxes uses tax brackets. The lower your tax bracket, the lower the percentage of your income that will be consumed in taxes. As the government continues to try to shift, the tax burden toward the wealthy, persons in higher 2010 tax brackets will pay even more in income taxes. If you foresee that you need to do something to lower your income tax rate, here are some things that can be done now to put you in a lower 2010 tax bracket.
One of the easiest ways to lower your tax rate is through an Roth IRA. The IRA or individual retirement account is a way of saving money for retirement years. The money that is placed in an IRA is not taxable income for the year in which it is earned, but will be taxed when cashed in. The rules that raise the limits of money that can be added to both Roth and traditional IRAs have been extended through 2010.
If you work for an employer who offers a 401k plan, this plan can also be used to lower your tax burden. You will need to act quickly for the plan to work to lower taxes as your contributions are made as a payroll deduction from each paycheck. Workers are limited to a ten percent contribution, but your employer may add even more funds through an employer-matching program. Taxes on the money added to the plan are not paid until withdrawn. If you leave the employer, then your are no longer eligible for the program, however a 401k rollover allows you to convert money you receive from the plan into an IRA to prevent paying taxes until retirement when you will be in a lower bracket.
IRAs and 401ks are great ways to lower your taxes for 2010 while planning for your future retirement. If you have questions about these plans you should speak with your accountant or tax attorney.