We all like the idea of saving money come tax time but tax tips seem to only come at the end of the year, when everyone is scrambling to get a few more tax deductions before the year ends.
We’re going to change it up a little and provide a five tips you can do right now that should make life easier come tax time.
While you don’t want to do anything illegal to avoid paying what you owe, there is also no reason to pay more than you are liable for. With a little planning, it’s possible to pay only what you legally owe — and not a penny more.
1. Plan Ahead
One of the best things you can do when it comes to tax planning is to look ahead. What expenses will you have for the year? What items can result in tax credits and deductions?
By looking ahead, you can get a solid idea of what you are eligible for, and then plan your expenditures accordingly. It makes sense to be prepared and boost your tax efficiency throughout the year, rather than try desperately to find last minute tax savings.
Are there charities you want to support but don’t have the cash on hand? Start saving today with the goal of making the contribution in December.
Do you run your own business and are thinking about making a capital purchase? Start saving.
What about making an extra mortgage payment (paying the January bill in December, thus taking the interest deduction this year)? These are all things that cost money and rather than throw it on a credit card, start saving today.
2. Should You Be Itemizing
For many taxpayers, itemizing tax deductions can be a way to reduce taxable income.
Itemization works when you have a number of tax deductions that, added together, amount to more than the standard deduction that all taxpayers get.
Eligible tax deductions include charitable contributions, mortgage interest, job hunting expenses, medical expenses over a certain amount of your income, and a number of other expenses.
TurboTax will help you decide whether to take the standard deduction or itemize, but you should still start thinking about the tax deductions mentioned now.
Start accumulating those receipts and amounts today so that you can save more money and have your data ready to go when you file your taxes.
3. Keep Good Records
When it comes to taxes, it’s all about good and organized records. You need to have a good idea of what you’re spending money on, and you need to be able to prove to the IRS that you deserve a tax deduction or credit.
In many cases, without the proper documentation, you are ineligible for tax savings. Make sure you keep good records of everything.
It’s even better if you keep your files in good order so that you can find your relevant documents when you need them at tax time. You’ll save time as well as money.
4. Strategically Sell Your Investments
If you have investments that you want to sell, make sure you go about it in a strategic manner. When you sell something for gains, you will have to pay taxes on those gains.
You can reduce the amount that you have to pay in capital gains taxes by offsetting your gains with capital losses. If you have some losing investments that you want to get rid of, you can sell them and deduct the losses.
If and when you do sell, be sure to set aside the appropriate amount for taxes. It might also be necessary for you to pay quarterly estimated taxes depending on your tax situation.
Finally, consider donating appreciated stock instead of cashing it out if your financial situation permits.
5. Estate Planning
Don’t forget about planning for the future. While you might not reap the benefits of your estate planning efforts, your heirs will thank you when it comes time for them to pay taxes.
Estate planning isn’t the most fun of topics but it’s an important part of your financial picture.