The Key to Saving on Taxes Tomorrow is…Today
It’s never too early – or too late – in the year to find financial advantages that will save money for you and your family. And while you might start thinking about managing your monthly budget as a first step in stretching your dollar further, you might find that your taxes are one untapped resource that you might want to take another look at.
One place to start looking is at the way you have filled out your tax forms with your employer. If you are not having enough income withheld, you may find yourself owing the government additional money at the end of the year.
However, knowing how much to withhold can sometimes be confusing. This is especially true if you are entering the workforce for the first time, or if you have had a major change of life like getting married or having a child. Thankfully, the Internal Revenue Service is quite good about providing resources that make it simpler to make sure you have the right witholdings in place. You can simply navigate to their withholding calculator, located here https://www.irs.gov/individuals/irs-withholding-calculator, and identify the correct amount based on your personal considerations.
The holidays that come at the end of the year are often described as a time of giving. Many people spend the final months of the year considering how fortunate they are, giving thanks for the positive forces in their life, and pondering those who are not as lucky. That giving may manifest itself in donating to charities. If that is the case for you, then you will definitely want to make sure you’re properly documenting all your donations so that you may then write them off of your taxes.
You may even want to go a step further. Instead of just documenting your donations, how about increasing them in the name of the holiday season? If you’re looking to make a real difference on your annual tax expense, heavying up on the amount you donate could make a real difference for you. And keep in mind you’ll be making a positive difference for others at the same time!
Many employers hold open enrollment sessions near the end of the year. Does your employer allow you to put money into a Flexible Savings Account, or FSA? Money added to FSAs goes into the accounts prior to being taxed, so it’s a great way to keep more of your money before the government takes its share.
Year-end tax planning doesn’t just have to revolve around doing something differently in November or December either. It can also mean planning to take advantage of an opportunity in the coming year. For instance, you may realize there is room to donate more into your 401k account, which like the aforementioned FSAs, has the benefit of being funneled into your account before taxes are taken out.
You can also begin to make a comprehensive list of everything you need to track for the coming year. Medical expenses, continued education, and even the software you used to process your taxes might all be eligible! The key is closely monitoring these and documenting them so that you can include them on your next tax return. Be careful to stay on top of simple details too, like keeping all receipts for purchases you think might be tax relief-eligible.
Are you self-employed or do you drive to work functions that are not held at your office? Then you can actually declare the mileage you drove on an itemized tax return! If you travel a lot then the money to be earned from mileage can add up quickly.
The stats do not lie – according to the Wall Street Journal, 57% of Americans say their income taxes are too high. So there’s a decent chance you fall into that group. The key to working your way out of it and making sure you are saving every possible penny is preparation. Having a good handle on what tax deductions are out there, how much they might be worth, and how you need to track them is critical.
That last point bears repeating: tracking expenses and deductions is imperative as you look to save on your tax expenses. For one thing, filling out taxes is time-consuming, even with the leading edge software that is out there today. So properly tracking is going to save you a lot of time. And secondly, you never know when the IRS might want to take a closer look at your tax returns. Having receipts and detailed documents are only going to prove to be your friend in this scenario.
No one enjoys filing their taxes, but with some end-of-the-year generosity and some forward looking planning, you can make the tax return process less painful.