We all do it – we arrive at a deadline and wish we hadn’t procrastinated until the last minute – and your taxes are no different. Here are some year-round tips for minimizing your taxes.
Learn Which Life Events Affect Taxes – and How
While you probably aren’t thinking of it at the time, most major life events also come with tax changes. If you get married, divorced, have a child or adopt one, or experience other big changes this year, your taxes will be affected.
Take the time to do some research beforehand. Knowing how your big life events will affect your taxes can help you start planning for those changes earlier, which only makes it easier for you and your family in the long run.
Use the IRS Tax Withholding Estimator
If you want to get way ahead of the curve, you can use the IRS’s free Tax Withholding Estimator tool. Having an accurate estimate of your withholding can do a few things. It can help you catch paycheck withholding errors quickly, and it can also ensure that you are not withholding too little tax, and thus creating a large tax bill for yourself next year.
Reduce Gross Income Subject to Taxes
Investopedia recently shared three moves to help reduce your taxable income and cut your taxes:
- Increase retirement contributions: one of the easiest ways to reduce taxable income is to increase your contributions to an employer-sponsored retirement plan or an individually held traditional IRA. Recently, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 states that for 2020 and beyond, the age restriction of 70 ½ years has been lifted, allowing seniors to contribute to IRA accounts indefinitely.
- Increase your contribution (or start contributing to Roth 401(k) or Roth 403(b): These employer-sponsored plan contributions are made through your paycheck, and while they don’t provide up-front tax benefits, they do allow for tax-free withdrawals later.
- Profit from your losses: On the individual level, losses on investments can be written off against investment gains to the tune of $3,000 each year.
- Donate to charity: This year, non-profits need you. And the relationship is mutually beneficial. Instead of taking the standard tax deduction, you can itemize your deductions and reduce your taxes by the same amount that you made contributions to qualified charitable organizations.
Keep Accurate Records
The tax code is complicated and ever-changing. Whether you do your own taxes or pay someone to do them for you, maintaining accurate records not only protects you in case if an audit, they also can help you get taxes back if there are errors.
For example, a friend of mine moved out of her parents’ house and in with her husband in mid-2018. Not being tax-savvy herself, she chose to pay a CPA to do her taxes for 2020 and even gave them her 2019 tax information. In doing so, they found that she’d been paying taxes in a school district she hadn’t lived in for 2 years. By her keeping those records, she was able to increase her tax refund even for previous tax years.
File your Taxes Online
The tax world is an exciting place to be, but it can be difficult to navigate. That’s why, when you’re trusting your taxes and your business’s taxes to an outside entity, you need to know they are on top of all the things that can help save you money and reduce friction during filing.