Tax Season Rocks
by Cathy L. White, EA
Now is the time when taxpayers are focused on filing their 2016 taxes. How’s it going? Are you feeling overwhelmed and anxious? Doing a little planning now can help reduce that anxiety for 2017.
Did you over withhold on your taxes? (Did you loan the government too much money during the year?) Did you under withhold and now you owe the government too much? Now is the time to make adjustments that can affect your 2017 tax situation. One thing to review immediately is your filing status. Are you gaining or losing a dependent in 2017? By adjusting your withholdings with your employer now, you can effectively have the type of tax filing season that does not create anxiety. Adjusting your withholdings is one change that can impact your financial situation immediately. There are other things you can do now, that will affect your tax situation for 2017 and your future financial security.
Contribute to retirement accounts. If you’re not already contributing to a workplace-sponsored retirement plan such as a 401(k), start as soon as your next eligible enrollment period opens. This is the number one easiest way to reduce your taxable income and at the same time you get to keep your money. Don’t have an employer sponsored retirement plan? You can still contribute to a traditional IRA. In fact, you can still make a 2016 contribution. You have until the tax filing deadline (that’s April 17th) to make your 2016 IRA contribution. Contribution limits are $5,500 for most people and $6,500 for those 50 and older.
Open a Flexible Spending Account (FSA). This is an account that accepts pre-tax dollars and lets you spend them tax-free on healthcare and daycare expenses. Be careful with these plans, as you need to use most of your contribution each year, or you lose it. Still, if you plan well, this can save you a lot in taxes. If you’re expecting to pay $2,000 on braces for your child this year, sock that much into your FSA and you’ll avoid paying taxes on it. Contribution limits for Health FSAs are $2,600 for 2017.
Contribute to a 529 plan. 529 plans let you save a lot for college expenses. Money in them grows tax-free and distributions taken to pay for qualified education expenses are not taxed, either. You can shift a portion of your taxable income to your children or grandchildren to fund a 529 plan.
Be organized. You don’t want to have to hunt for receipts and tax-related documents at the last minute, when you’re rushing to prepare your tax return. Aim to be organized throughout the year, perhaps by maintaining a “taxes” folder or other means into which you can drop any receipts or other documents that will support your tax return. For example, you may be able to maximize your use of the Child and Dependent Care Credit if you have receipts for when you send your kids to day camps — and even if you drop a parent off at an adult day care while you work. Track your business related spending, too. Keep track of your mileage and out of pocket expenses when you volunteer for non-profit organizations. You can deduct your mileage as a charitable donation.
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. Once you learn how to maximize your Social Security benefits, and by making some financial adjustments now, you could retire confidently with the peace of mind we’re all after.
Hire a tax pro. The benefit can be well worth the cost. A good tax pro will know the tax code and may be able to lower your tax bill while suggesting effective tax strategies for you.
If you want to save money, reduce your tax bill and improve your overall financial picture, take on one of the actions above. You may end up keeping thousands of dollars in your pocket.
Here’s to a great tax season!