Tax time can be stressful. After all, no one likes the thought of owing money to the government when it comes to doing their taxes. But with some planning and know-how, you’re sure to get past tax season with flying colors and put more money in your pocket too.
Knowing some of the best tax planning strategies will help keep as much hard-earned cash as possible in your wallet rather than head towards Uncle Sam every April. Stay ahead this year by understanding these 4 essential tips for successful tax planning.
Make Sure to Take All Eligible Deductions and Credits
There’s no point in leaving money on the table when it comes to taxes. When filing your taxes, you should take advantage of all the deductions and credits. Doing so can result in significant savings, so put in time and research to ensure you get all the benefits.
From business expenses to home office deductions, get familiar with the options available – you may be surprised at how much you can save. When it comes to tax season, being savvy is critical. So do yourself a favor and arm yourself with knowledge before tackling those forms.
Try to Keep Your Taxable Income as Low as Possible
One of the easiest ways to reduce your taxable income is by taking advantage of deductions. Depending on your situation, there may be a variety of deductions available to you, such as student loan interest deduction, mortgage interest deduction, and more.
Research and find out if any of these might work for you. Additionally, contributing to an employer-sponsored retirement plan lowers your taxable income as contributions are deducted from your pay before taxes.
If you’re self-employed or have other investments, consider investing in a tax-advantaged IRA or 401(k) account. These accounts allow you to defer taxes on certain types of income until later. Finally, remember the credits.
Credits work differently than deductions because they reduce your tax liability directly, meaning they can lower the amount of money you owe. Keep an eye out for credits that could help you keep more money in your wallet.
Reducing your taxable income is about maximizing savings and keeping as much hard-earned cash as possible. With a little effort, you can position yourself to reap the rewards come tax season.
Keep Track of Your Expenses Throughout the Year
Staying on top of your finances and keeping track of your expenses is essential. Not only will it help you budget better, but it’ll also give you a better understanding of where your money is going. The best way to do this is to ensure you record all of your purchases throughout the year, no matter how small or big.
Create a spreadsheet or use an app like Mint to track your expenses and keep sight of them. That way, come tax season or reviewing what areas need improvement, you’ll have easy access to detailed information about how much and where you spent your money.
Plan for Significant Expenses That Will Result in a Higher Tax Bill
If you have any significant expenses, like a wedding or a home purchase, remember to factor in the tax implications. While it might be tempting to overlook them, the extra costs can add up quickly. Talk to your accountant or financial advisor ahead of time and ensure you’re planning for any additional payments that could come due when tax season rolls around. That way, you’ll be prepared and not get caught off guard by surprise charges. Consider putting aside money each month so that when tax time comes, you’re ready with enough cash to cover everything without breaking the bank.
