Having just made it through another tax filing season, the last thing you want to hear right now is more talk on investments and returns. However, thinking about your tax filing strategies now can ensure that you owe the government less (or that they even pay you) in the future. So if you want to save on your 2019 taxes, then the time to start planning is right now.
Perhaps to the surprise of many people, there is more to successfully filing your taxes than just getting them in before the dreaded April 15 deadline. While meeting this deadline will save you from paying a failure-to-file penalty that can equal about 5% of the total amount of taxes due, you can only see significant savings if you start planning well before April of next year. Discover what you can do now so that you will see major savings and hefty checks this time next year.
Have less taxable income
While you probably don’t want to make less income overall — and that’s certainly not what we recommend for financial success – there are ways to not have all of your income subject to taxation. The simplest and most popular way to reduce your taxable income is to have a portion of your paycheck directed to an employer-sponsored retirement plan.
A 401(k) is one of the more common plans. Any wages you defer to a 401(k) don’t count towards that year’s taxable income, potentially putting you in a lower tax bracket. You will also be building a comfortable fund for your future self as you near 63, the average of retirement. If you don’t have access to a 401(k), contributing to a traditional IRA can also help you lower your adjusted gross income.
Know your deductions
One of the key parts of tackling tax season is taking advantage of all of the deductions available to you. When you miss even the smallest deduction you may end up paying more than you need to. Common deductions for individual taxpayers include major medical bills, mortgage interest and local property taxes, student loan debt interest, and charitable donations.
There are also many business-related deductions available to freelancers or individuals who work from home. These deductions can range from the cost of your home office space and supplies to food and entertainment expenses. Even contributing to the growing food delivery market, which is projected to see a 79% increase by 2022, for a work-related need could potentially count as a deduction. Remember to add these up throughout the year and you may be able to supersede the standard deduction for your filing status and see more savings.
Check in with your CPA more often
If the relationship between you and your tax accountant is like that of many across the country, you probably keep communication to a minimum until its time to tackle those tax returns. By simply checking in with your CPA before tax time comes, you may be able to make money-saving adjustments before its too late. Your accountant can run mid-year and end-of-year tax projections with information such as the amount of income you’ve earned so far and your business and investment accounts.
With this tax estimate, your accountant can then advise you on any helpful adjustments. It may be that you will owe the government less or nothing at all by simply withholding more from your paychecks or adding to the retirement accounts mentioned earlier. Even if your CPA is unable to find ways to improve your tax outlook for next year, you’ll be able to see your tax bill in advance and on paper. As printed material is generally more engaging for people over digital material, which is often skimmed in just 15 seconds, you won’t be caught by surprise when your return rolls around next April.
As much as we may want to think of taxes as something that we only have to worry about once a year, that mindset can cause you to give the government more than you need to. With some careful planning and simple adjustments, you could see a major adjustment from last year’s taxes to next.