I for one am really glad tax season is over! I love it when it starts, and I love it when it’s done. It would be so easy to start thinking about summer and what fun adventures we want to go on this year. But let’s take a few minutes to think about what we learned from our tax return this year so that we can make next year’s tax return a bit friendlier.
If you ended up owing additional money, or if you are paying more in taxes than you would like, it’s a good idea to consider some tax saving strategies. Now, early in the year, while you still have time to make a difference. Here are a few ideas that may help to save some of your tax dollars:
If you aren’t putting the maximum amount in your 401K, you should look at increasing your contributions. It could save you some tax expense, while helping to reach your retirement goals a bit sooner. If you are eligible to contribute to an IRA, save money for it now and make your deposits through the year instead of trying to come up with the money at the same time that you are paying your tax bill.
Consider donating more. It’s better to give money to charity than the IRS. You can also deduct charitable miles, so keep track of those. Or donate your unwanted household goods. I usually get a larger tax break on things donated than I would make if I sold them for almost nothing at a garage sale. Be sure you are donating to a nonprofit organization, and get a receipt. I always take a picture of my donations so that I am not trying to remember what I donated when I’m preparing our taxes.
If you own your own business, be sure to keep track of all of your business expenditures. It’s a lot easier to track now than to reconstruct next year. There are apps you can use if you are on the go often. If you aren’t sure if an expense is deductible, keep track of it anyway. Your tax preparer can use it or not accordingly.
Look at putting money into your HSA at work. This way you pay your medical expenses with tax free money.
If you don’t have health insurance, as of right now there is still a penalty added to your tax return for that.
Keep track of travel expenses and mileage for medical reasons, as well as insurance premiums. If you are able to deduct medical expenses, these can be used also.
If you live in a state without a state income tax, you can deduct sales tax. Most people use on a “table” amount based on their income, but if you buy a big ticket item keep track of the sales tax paid on it.
Keep track of unreimbursed work related expenses, such as travel, specialized clothing, equipment, tools, or a home office.
If you plan on using stocks to make a charitable contribution, be sure to donate the stock directly if the stock has increased in value since you purchased it and you can use the market value as your deduction. If you sell the stock, then donate the cash, you will have to pay tax on the gains. On the other hand, if the stock has declined in value, sell it first so that you can take the loss on your tax return, then donate the cash.
If you have taken out a loan on your 401K, try to pay back as much as possible before changing jobs. Otherwise you have to show it as a withdrawal and pay taxes and penalties on it.
Make sure you are taking advantage of all the tax deductions and/or credits you are entitled to. If you are unsure, contact your tax preparer. With a little bit of planning we can help ourselves avoid pain next tax season. Now we can start planning our summer adventures!