There are few things I enjoy less than dealing with taxes…

Maybe a bout of stomach flu. Or sitting in the middle seat on a plane while the guy next to me clips his toenails. I think that’s about it.

I don’t even do my own taxes. I stopped that in the mid-’90s when I nearly hurled my computer out of my apartment window in a fit of frustration.

It’s not even the paying of taxes that enrages me. I get that roads have to be built, teachers, firefighters and police have to be paid, and Congress needs its five-star health benefits and pensions (don’t get me started).

It’s the tax planning and organizing that drive me crazy.

When I was young and didn’t have any assets, I really didn’t think about taxes much. If I had capital to invest, I bought a stock. If I made money, I paid taxes on the capital gains.

Today, I’m much more aware that “it’s not what you make, it’s what you keep.” I will pay every dollar that I owe as required by law, but I will also do everything within the law to lower my tax bill.

I’d encourage you to do the same – so today, I’m sharing three key things you can do to lessen what you owe.

1. Contribute to an IRA or 401(k).If you are eligible, contributing to an IRA or 401(k) not only allows you to invest tax-deferred for years, but also lowers your taxable income so you will pay less tax today.For example, if you contribute $5,000 to an IRA and are in the 24% tax bracket, you will save $1,200 in taxes.

   Best of all, you can still contribute to an IRA up until April 15 of this year to get the tax credit for last year. So if you haven’t contributed to an IRA yet, you still have time to reduce what you owe for 2019.

2. Donate to a charity with retirement funds.If you are making a required minimum distribution (RMD) from an IRA or 401(k), you are likely paying tax on those withdrawals.If you donate money to charity, unless you are itemizing, you are not getting the tax benefit of your donation.

   However, if you donate directly from your IRA or 401(k), it will reduce your taxable income. This is something that a lot of people miss.

   Let’s say your RMD this year is $10,000 and you are in the 24% tax bracket. You will pay $2,400 on the withdrawal. Let’s also assume that each year you give $2,000 to charity.

   Rather than withdraw the $10,000 and then write a check for $2,000, instead donate the $2,000 directly from your retirement accounts.

   You can even donate stock or mutual funds. You don’t have to convert it to cash.

   If again you’re in the 24% tax bracket and you donate $2,000 from your IRA or 401(k), you will save $480 in taxes. What’s more, the $2,000 counts toward your RMD.

   Even better, your favorite charity still gets your contribution. It’s a win-win-win – for everyone except the IRS.

3. Arrange your investments tax-efficiently.Like me when I was younger, most people don’t arrange their investments according to their tax liability. But if you have a wide range of investments, doing this can save you a lot of money.For example, I put my higher-tax investments, like bonds and other interest-bearing assets, in my retirement accounts. I also put dividend stocks in my 401(k) so that the dividends compound tax-deferred.

   But if I am buying a bond and a stock and can fit only one in the retirement account, it will be the bond. Here’s why…

   Bonds pay interest, which is taxed at your ordinary income tax rate. Stocks pay dividends, which are taxed at 15% for most people.

   If you collect $10,000 in bond interest and $10,000 in dividend income and are in the 24% tax bracket, that means you’d pay $2,400 in taxes on the bond interest and $1,500 in taxes on the dividend income.

   If you are able to put only one of those investments in a tax-deferred account, it should be the bond. You’ll save $2,400 in taxes versus $1,500 for the dividend stock.

These three simple strategies allow you to hang on to more of your money to pay for your healthcare and retirement… instead of funding Nancy Pelosi’s and Mitch McConnell’s.

Good investing,

Marc