12/16/2016 | By Team United
Life’s relentless in its challenges, tax season is no exception. While you can’t avoid the tax man altogether, there are ways to save yourself some angst and aggravation – and hopefully some money. The secret? Advance preparation. When you’re in a rush, mistakes happen, the items you need become harder to find, and, the more likely you are to overlook a tax deduction or credit you deserve.
Well-organized documents, receipts, and statements can help you to see where you are today. And by giving yourself plenty of time to prepare, you won’t be frantically searching for items at the last minute. You have the chance to gain a snapshot of where you are today, what you still need, and the steps to take to gain the most of the upcoming tax season.
It’s also a good time to start a checklist to track documents as they arrive. (Try this downloadable version courtesy of TurboTax®.)
Papers to compile:
While every situation is unique, GoBankingRates.com explains the most common tax forms below. While you may not need them all, you’ll more than likely need several from the list:
Things that can impact your taxes or how you file include a job change, marriage or divorce, having a baby, the start or end of daycare expenses, a child who reaches age 18, buying or selling a home, or going back to school.
Finding ways to reduce your taxable income is key to saving money on your taxes – either by lessening the amount you owe or increasing the amount you get back. Tax deductions and credits can help. And if you’re savvy, there are some steps to take now, before the year is out.
Anil Melwani of the New York Society of CPAs (www.nysscpa.org) counsels his clients to consider making an extra mortgage payment or even prepay state and real estate taxes before the end of the year to allow for an extra deduction. “Paying your state income tax estimate before December 31 accelerates your federal deduction,” says Melwani on the association’s website.
According to the NYSSCPA, you can also pay property taxes early, make an extra mortgage payment (the interest portion is deductible), or opt to have dental work or elective (deductible) surgery before the end of the year. Using a credit card is the same as using cash—the deduction is taken in the year the charge is incurred, not the year you pay off the credit card balance. “It is advisable that you consult your tax advisor and invest the time in preparing a tax projection in order to determine if these tax strategies will be beneficial for you to execute,” adds Melwani.
Other deductions may include education expenses, investment interest expense, casualty and theft losses, energy-saving home improvements, union dues, and unreimbursed employee expenses (such as uniforms, continuing education, and travel).
By making your charitable donations on or before December 31, you not only do a good thing for someone else, but you can maximize your potential tax benefits. Donations include cash, property (clothing, furniture, electronics, a car, boat or even land), miles driven for a particular cause, and miscellaneous expenses. You’ll also want to confirm that the charity is registered as a 501(c) (3) and receive a receipt for any donation valued at $250 or more.
Tax deductions and tax credits are not the same stresses the NYSSCPA: Unlike tax deductions, tax credits can directly reduce the dollar amount of taxes you may owe to the IRS, so it is important to figure out these numbers in advance. If you qualify for $500 in tax credits and owe $1,000 to the IRS, you will only owe the IRS $500.
Common tax credits:
According to GoBankingRates.com, under the Child Tax Credit, you can receive up to a $1,000 credit for each qualifying child under the age of 17. This credit only applies to those with incomes under $110,000 for married couples and under $75,000 for those filing individually. The Earned Income Tax Credit applies to those with low incomes.
The IRS defines the American Opportunity Tax Credit as a credit for qualified education expenses paid for an eligible student for the first four years of higher education. The maximum annual credit is $2,500 per eligible student.
Other tax credits include:
Investing in your retirement is a good thing. Not just for your future well-being but to potentially reduce your tax liability today. And, there are certain strategies you can take before year-end to maximize the impact.
“If you have a 401(k), IRA, or other retirement plans, it may be a good idea to temporarily increase your contribution into them before year’s end,” explains Melwani. “By doing this, it can help lower your taxable income. If you are earning $50,000 a year in taxable income and contribute $5,000 to your IRA and $5,000 to your 401(k) plan, that can drop your taxable income to $40,000, lowering the amount of money that can be taxed.”
You should always seek independent advice from a tax professional based on your individual circumstances. Information provided does not nor is intended to constitute legal advice; contact an attorney for a legal opinion regarding your particular situation.
Proper planning along with a few strategic moves can help lessen your tax burden. Get organized. And start early to make the most of your deductions, tax credits, and potential to save.
New York Society of CPAs: http://www.nysscpa.org/news/press-room/press-releases/release/6-year-end-tax-tips-to-prepare-you-for-2016-filing-season#sthash.Nw8WLDHV.S8UOE4t5.dpbs
Adoption Tax Credit: https://adoptiontaxcredit.org/faqs/
U.S. News: http://money.usnews.com/money/blogs/my-money/2014/03/14/10-ways-to-lower-your-tax-bill
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