by Jeff Schnepper Microsoft Money Tax Expert (NAPS)—Keeping the tax man away from your money maybe easier than you think. With a bit of planning, you can cut your tax bill: Tax-free interest: Interest earned on bondsissued bya state, territory, municipality or any polit: ical subdivision is free from federal taxes. If you're in the top 35 percent bracket, a five percenttax-free rate is like a taxable rate of 7.69 percent. At investinginbonds.com you can compare taxable and tax-free yields. Some bonds mayalso escape state andlocal taxes. Carpoolreceipts: Commutingto work? Bringa friend. If you form a carpool, paymentsfrom passengers for repairs, gas and so on, are not included in yourincome. Sell your house: If your house wasyourprincipal residence for two of the last five years, you can exclude as much as $250,000 in gain ($500,000 on a joint return) when you sell it. You don't haveto reinvest the money and you can claim the exclusion every two years. Tax-free compensation: When you're due for a raise, ask your company for nontaxable compensation. Health and hospitalization insurance premiumsare tax-free for you and yourfirm. Coveryour life: Groupterm life insurance coverage of $50,000 or less paid for by your companyisn't taxedto you. Youpick the beneficiary; your companypays the premiums. Your company deducts the expense; you walk away with additional tax-free income. Sendyourself to school: Get educated. The courses don't haveto be job-related. Your companycanpay, and deduct, as much as $5,250 per yearin educational assistance that Don’t overpay taxes on income protected by the U.S. tax code. comesto you tax-free. Get you there: Your company can give you discount fare cards, passes or tokens to take public transportation to work as long as it's worth under $100 a month,you get it tax-free. If you drive and haveto pay for parking, your companycan provide free parking, up to a maximum value of $180 a month, to you tax-free. Flexible Spending Accounts: Your company makes deductible contributions under a written plan, you select between taxable and nontaxable benefits. To the extent you chose nontaxable benefits, you havenoadditional income. nontaxable benefits may include grouplife insurance, disability benefits, dependentcare and/or accident and health benefits. ‘Any time you convert taxable income into nontaxable income, you've given yourself a raise. Microsoft. Money provides access to helpfultips andtax tools such as the Tax Estimator, which tracks all types of income and expenses. For more information, see www.microsoft.com/money/.
