So here are five tax moves to make now, after April 15th (or 18th this year) has passed:
1. Use Your Refund Wisely
This tip won’t help much for next year’s taxes, but if you got a refund this year, use it well. You may decided to pay down debt or invest it. And you could even have a little fun with a portion of it.
But don’t just blow your refund – particularly if you have non-mortgage debt. If you have car loans, credit card debt, or other high-interest debt, use your refund to pay it down. This will maximize your savings by reducing the interest you pay. Alternatively, use some of the cash to fund this year’s IRA or to boost your emergency fund.
Related: 10 Ways to Use Your Tax Refund
2. Re-Evaluate Work-Based Withholding
Whether you got a refund or owed taxes, now is the time to re-evaluate your withholdings at work. The goal here is to come out as close to $0 owed or refunded as possible.
Whether your employer is withholding too much or too little, now is the time to address the issue. It’s early enough in the tax year that you can make adjustments now to better align the money coming out of your paychecks with the actual money you owe. While you do this, be sure to evaluate any major changes in 2016 that may alter your tax liability this year compared with last.
3. Plan for Your IRA Contributions
If you plan to contribute to an IRA, you can wait until you file your 2016 taxes next year to make that contribution. If you have cash set aside to do that, this last minute approach is fine.
For many, however, the best option is to make quarterly or monthly contributions throughout the year. It’s easier to deal with your IRA contributions as an expense this way. After all, $5,500 (or $6,500 if you’re at least 50) is a lot of money. So figure out how you’re going to make those contributions, especially if IRA contributions are a major part of your tax and retirement planning.
4. Plan for HSA Contributions
If you have a Health Savings Account, plan for those contributions, too. This is a fabulous vehicle for not only paying for health costs, but ultimately saving for retirement. If you have an HSA, take advantage of it. Your contributions can reduce your tax liability, and help you plan for future medical expenses. If you don’t have an HSA, check out this article to get more information on them.
Money Guide: Health Savings Accounts
5. Organize Your Paperwork
If you’re anything like me, you get to tax time and are aggravated because you didn’t plan better throughout the year. You’ve
got tax paperwork everywhere, and it’s not organized at all.
For instance, we give a lot of household items to charities. They call us and then pick up our donations at our home. It’s an extremely convenient way to give back.
At tax time I’ll gather up all those receipts and one of them will inevitably be blank. The charities don’t itemize the items you donate and tell you what they’re worth. You’re supposed to do that. So this year, I’m trying to do better by writing down what we give and estimating (conservatively) its value on the day we give something away.
But that’s just one example. In my case, I also run businesses, so I’ve got expenses to track. The paperwork gets a little overwhelming. So if I stay on top of it throughout the year, things are much, much better for me at tax time.
A great tool to help with the organization is a paper scanner. I use the Scan Snap. It scans just about anything to pdf, which I then save in dropbox in a folder for taxes.
But here’s the key. You have to start organizing now. If you wait until next year, you’re just giving yourself more headaches when you file your taxes. Think about this now so that you can make next year’s filing easier.
If you take these five tips now, you’ll have a smoother time filing your taxes next year, and you’ll also save some money.If you plan well now, you can make tax season next year a lot easier, and possibly save some money too! Here’s what you need to know.