This year’s tax season may be over, but it’s not too early to start planning for next year! Tax season is usually not everyone’s favorite time of year, but taxes are a necessary evil we must face. Many people procrastinate on tasks they dread, and if you are like one-third of Americans, you wait until the last minute to file your taxes. Unfortunately, ignoring the reality of tax season will only increase your blood pressure. Even if you waited until April to get organized this year, you can be proactive and prevent the headaches and stresses for next year by following these tips:
1. Maximize Deductions and Credits
Benjamin Franklin may have declared that “nothing is certain except death and taxes,” but that doesn’t mean you can’t do your best to reduce your tax bill. Fortunately, there are various credits and deductions that will not only benefit you this tax season but also serve to give your financial future a boost.
Make Deductions Work For You
Maximizing your retirement savings is an optimal way to save on your taxes as well as increase your nest egg. If your employer offers a 401(k), you can contribute up to $18,000 in 2017. If you are over 50, you can also take advantage of catch-up contributions of an additional $6,000. If you don’t have the opportunity to save through an employer-sponsored plan, you can still invest in an IRA. IRA contribution limits for 2017 are $5,500 per person, with an additional $1,000 for those over 50.
Contributions to HSAs (health savings accounts) are also an excellent vehicle for reducing your total taxable income. The 2017 contribution limits for HSAs are $3,400 for an individual or $6,750 for a family. You can also make a $1,000 catch-up contribution if you are over 55.
Some additional deductions that may apply to you are state sales tax on major purchases, student loan interest, medical and dental expenses, and business write-offs.
Seek Out Applicable Credits
Filing taxes can be painful, but if you know where to look, you may be able to benefit from a variety of credits. Many Americans qualify for the Earned Income Tax Credit, and if you or your children attend post-secondary education, you could benefit from the American Opportunity Credit and the Lifetime Learning Credit. There are also credits for saving for retirement and child and dependent care. A qualified CPA will know what questions to ask and what to look for so you don’t miss out on any opportunities to minimize your tax bill.
2. Organize Your Paperwork
This is a crucial step to ensure a smooth filing experience. Gather records and account for all income, most commonly in the form of a W-2 or a 1099. Your employer is responsible for getting these documents to you by January 31st, so you will have plenty of time to organize your paperwork before the filing deadline. Here are some additional documents you may need when filing your taxes this year:
- Records of charitable contributions over $250
- Information from prior years’ tax returns
- Rental income
- Mortgage interest and property taxes paid
- Dividend income
3. Work with a CPA & Financial Advisor
Did you know that over one million accountants are hired each year in America to help with taxes? There’s a reason for that. Working with a qualified and experienced accountant can makeyour tax season experience as seamless and stress-free as possible. They have the knowledge to help you claim all the deductions you deserve, account for many variables unique to your situation, and answer any and all questions you may have. Their expertise can save you money and give you peace of mind.
While CPAs look backward in what you did in the past year, your financial advisor can help you look forward and provide suggestions that will help you reduce your taxes for years to come, such as offering advice on tax-friendly ways to set up your estate and showing you the benefits of maximizing your retirement savings and where to allocate funds. I will also work with other members of your financial support team, collaborating with your CPA or attorney to cover every aspect of your finances. Regardless of what your financial situation looks like, you can’t put a price on the value a financial advisor and CPA provide.
Even though next year’s tax season is many months away, take these steps to prepare now so you aren’t scrambling at the last minute. We have access to a network of professionals, which includes CPAs, so If you would like to get the ball rolling on next year’s taxes, please contact us.