Tax times makes most Americans shudder. Avoidance is how many deal with this yearly reality. Waiting until the last minute to do taxes only postpones the inevitable and may keep you from saving money. Instead, you can enter the new year knowing all your ducks are in a row. Here is what should be on your “to do” tax list.
Find all your receipts, income and expense records for the year. If you’ve relied on the shoe box approach, this is the time to consider a filing system that will help take some of the work out of gathering the information required to fill out the tax returns next year. A system of files for credit cards, insurance, medical, utilities, charity donations and whatever other expenses dealt with during the year, is simple and easily kept up. If you already use such a system, gathering information will be easier.
From your receipts and records, make a list of expenses, what they are, when they occurred, and whether or not you have a receipt for the expense. Also make a list of income from all sources. These include wages (check your pay stub), sales of goods and services, investments, bonds, etc. Knowing exactly what has come in and what has gone out is a way toward saving money on your taxes. This information helps you estimate your tax bracket and liability.
Make Contributions to Savings Plans
Consider contributing to a 401(k), an IRA or some other retirement plan with tax benefits. Contributions by the end of the year, for many, reduces taxable income one dollar for every dollar contributed. While contributions to IRAs can be made after the new year before tax deadline, the deadline for contributions to 401(k) accounts is the last day of the year.
Increase charity donations. These can be written off on taxes. This season, many organizations, such as the Salvation Army and the Red Cross, make a plea for donations that sustain them throughout the year. Organizations like this feed the hungry and help in times of need. Churches, local service organizations and others do good work. End-of-the-year donations not only help your bottom line, but also your contribution make a difference. Planned donations throughout the year are a good idea as well.
For years, the usual advice from financial gurus was to sell off what wasn’t working before the end of the year. This advice came because dumping bad investments showed the largest possible losses for tax purposes. However, with changes in the laws regarding taxing investments, some financial experts advise increasing gains for those in high tax brackets this year. While this may mean taking a hit this year, there are long-term savings.
Know What to Look For
You don’t want to miss out on information sent early in the year. Know what you will be receiving and make sure your receive the information. These include mortgage interest statements, W-2s, statements from charities, brokers and credit card companies. All are required to provide information that assists you in tax preparation.