Tax Savings Ideas
A collective sigh of relief can be heard around the nation after the April 15 deadline normally, but this year April 18, 2016, because many people only think about tax savings during tax season. Smart savers and investors realize that managing their tax burden is a year long commitment that can save them a lot of headaches and money. It is important to have a tax strategy early to take advantage of steps that can help relieve the April 15 (18) tax burden.
A good place to start is to analyze your paycheck to see if there are any opportunities you are missing that could result in tax savings or tax payment to Uncle Sam. People should decide if they want to get more money in their paycheck and perhaps have to pay something back each year or perhaps they would like to get a big refund check.
Some financial analyst suggest that people take limited exemptions and use the extra cash in their paychecks to invest. This is a good suggestions for those who are disciplined enough to put that extra money into an investment account instead of purchasing the latest fashion or using the money for entertainment.
If you are not one of those people who can be disciplined enough to dedicate the extra cash generated by limited exemptions and claims taking more deductions might be the better strategy for you. The larger check you receive when you file your taxes should be spent wisely with at least a portion of the money going to an investment account.
The government has creative ways to get more of your money and you have to use creative (and legal ways) to decrease your tax bill. Many people don’t think about taxes until it is too late to do anything about them. There are some steps you can take now that will help you feel less of the pinch of your tax bill. (Please be sure to check with your tax provider or visit the IRS Website for additional information.
Itemized vs. Standard
Keep a file of all the times you have donated to various causes, the Salvation Army and even donation to your church. Compare the itemized deductions with the standard one to see which one will save you more money. It important to remember that when claiming charitable donations on taxes that a receipt is required for donations $250 or more. Make sure that receipts are kept in a safe place.
The cost of higher education can be felt at public and private colleges especially when considering the starting salary for many careers start below the $30,000 a year mark. Make sure you include student loan repayments on your tax bill. Parents can also include contributions to a 529 college savings account on their taxes.
Contribute to Company sponsored 401K
There are two great reason to contribute to a 401K. The first is that it lowers your tax bill because money used for the plans are not taxed until you withdraw. The second reason is that when a company matches the plan giving you free money. There is usually a schedule of when you can take all the company match if and when you leave the company. (Ex. 2nd year+40%, 3rd year=60%, 4th year=80 % 5th year=100%) Please note that you can always take the money that you contribute from your paycheck with you.
Consider Flexible Spending Accounts
Flexible Spending Accounts are ways to put away money for medical expenses. You can use pre-tax money to pay for out of pocket costs. These accounts can help you save money by lowering your taxable income. The important thing too remember about these accounts is that you lose whatever you don’t use during the year so plan carefully.
There are many deductions self-employed people can take. It is important to keep accurate and up-to-date records. Gas, home office supplies, conferences and memberships to professional societies are a few deductions that you can take.
Recently the government has allowed people to write off home repairs related to decreasing energy waste.
Most people employed by companies don’t use this credit because out-of-pocket expenses have to be above 7.5% of your income. The self-employed and those using unemployment benefits may meet the financial requirement.
Whatever your strategy is it is important to have a definite plan on how to manage your taxes. There is one thing that is always certain-paying taxes and the smart investor manages taxes. Check out this articles site and IRS.gov for more information, the IRS site has all of the current tax information for everything in publications, articles and more..