Financial Planning Tips for Tax Season
The key to success during tax season has to do with year-round planning and preparation for the upcoming filing date. You need to stay organized, avoid audits, and gain complete control and insight over your finances to save time and money on your taxes. Make sure you have an organized filing system for all of your important documents as well as plenty of time to think through all of the potential ways to save. Attention to detail and financial preparedness during your tax prep will be rewarded with greater tax savings every time.
Review Your Withholding
At the start of each financial year, review your W4 form and make sure you are maximizing your tax savings by choosing the most appropriate withholdings. The default withholdings are designed to apply to standard tax payers. However, if you have a second job, are unemployed part of the year, got married or divorced, or had a baby, considering alternative options may be wise.
Minimize Taxable Income
The goal when filing taxes is to reduce taxable income as much as possible, allowing you to claim as much of your hard-earned money as you can for yourself. There are multiple ways of accomplishing this, and all of them require pre-planning and attention to detail. Consider if any of the following options apply to you.
– 401K: Making full use of your 401K plan is one of the most common ways of saving on your taxes while also building savings for later in life. You can contribute up to $15,000 each year, which is untaxed and usually matched to some degree by your employer. You won’t have access to the funds until after retirement, but the additional perks make it well worth it.
– Deferred Income: Each year you have the option of deferring taxable income until the following year. While it may just sound like a good way to procrastinate, it actually comes with a few hidden benefits for the smart tax filer. If your income from stocks was significant, this will allow you to defer capital gains tax.
On a more basic level, maximizing deductions is a method of reducing taxable income that should be accessible to everyone. Considering all possible deductions and understanding which of them apply to you is key. There are many options that fall into this category, but you can review the more common ones here.
• Child tax credits allow tax filers to claim any child under the age of 17 as a dependent, for households making under $110,000 per year for married couples and $75,000 for independent filing. You can save $500 per child with this method.
• Depending on your income, you can claim a child care credit if you are providing support for a dependent under 13 years of age. This is designed to allow parents to save money on child care services.
• The government likes to incentivize energy-saving technologies on a home-by-home basis. Installing solar panels or wind turbines in your house may be costly, but it can also save you up to $3,000 on your taxes.
If you would like to discuss your financial preparedness, please call 866-348-3435. A Herring Bank representative would be happy to help you!