Now that the pain of accounting for your taxes is behind you, do you feel like you paid too much in 2016? If so, what can you do to make filing of 2017's return more of a reason to cheer than cry?
The time to act is now (well it was January 1st, but let's stay on the positive side!). The steps you take today will determine the amount you will need to pay next year. And before you ask, these are all legal and IRS-approved!
- Increase the contribution to your retirement plan at work. At least be certain to take advantage of your employer matching contribution (if applicable). By contribution to your retirement plan you will gain 2 major benefits--saving for retirement and lowering your tax bill.
- Do you itemize deductions? Save your receipts!!! You would be shocked at how many tax-deductible expenses are forgotten when tallying up for the previous year come April.
- Here is the corollary to #2--if you are self-employed you are eligible for many deductions, but only if you can show a written record. Remember to record your vehicle mileage, meal expense, office supplies, etc. all year long. Paying cash at Staples to buy a box of pens and not saving the receipt will cost you come April!
- For so long you have heard that taking a deduction for a home office is a red flag at IRS Headquarters. Well that may be true, but if you are entitled to the deduction, and have carefully followed the rules, this can be a great tax saver. Make it a point to learn the rules today, so you can take this deduction if it applies when you file your next return.
- Make use of Health Savings Accounts, Flexible Spending Accounts, Health Reimbursement Accounts, and Dependent Care Accounts. Be sure to learn the rules of each type of account as you risk the forfeiture of funds in some accounts if not spent before the end of the year.
- Keep good records on your investments (or work with a financial firm that will help in this regard). When calculating your cost basis in an asset be sure to include any and all dividends reinvested.
- Pay attention to the timing of your asset sales. Gains must be realized in the year realized. If you are in a higher tax bracket this year perhaps you will want to postpone the sale to next year. Alternatively, you may be holding another asset at a loss and by realizing that loss in the same year reduce your tax burden.
- Track your charitable deductions. Don't forget to include deductions made through payroll deduction (such as the United Way). Get receipts for your cash and donations of goods and clothing as they are all deductible. Don’t forget to include the cash you place in the Salvation Army kettle at the holidays or the $20 you place in the collection plate at church each week.
- Remember the lessons of this April. If it was difficult to get all of your records together chances are you may have missed one or two deductions. Keeping detailed, written records is one activity that pays very well!