You read Pt 1 and came back for Pt 2. We salute you. So now without further ado the tax tips you’re looking for…
Start saving for a down payment on a house. Maybe you’ve already paid down your debt with past refunds, have an emergency fund and are a regular retirement saver. Is it your dream to own a home? Then apply your refund to that savings bucket. If you’re ready to pull the trigger on your purchase or bought in 2020 with the historically low interest rates we’re seeing right now, don’t forget that your points can be deductible as can home mortgage interest and real estate taxes.
Maximize HSA contribution to decrease taxable income. Similar to the dependent care FSA mentioned in Part 1, health savings account contributions decrease the amount of taxes you pay in the year you make contributions. The trick is that HSAs aren’t available to everyone as they are meant for people with high deductible health insurance plans. However if you do have access to one, not only can you stash money pre-tax to cover your medical expenses like eyeglasses, prescriptions and doctor visits, but the account can earn interest and rolls over from year to year and from employer to employer. If you don’t qualify for an HSA perhaps your employer provides access to a Medical FSA. You can elect how much to contribute from your pre-tax income and use the funds on medical expenses. Here’s where this account gets tricky. The funds are a use-it or lose-it deal so you need to be really good at estimating how much you’re going to spend in a calendar year or risk losing some cash. This didn’t used to be a big deal years ago because you could use up whatever was left at the end of the year buying OTC products, think 🩹💊 . Thanks to coronavirus (bet you thought you’d never see those words used in a non-sarcastic manner 🙂) you can do this again. However, stay alert to hear if the government switches this feature back off again. Honestly we hope they never do, but if it does happen just know that it’ll mean getting a prescription for things like Tylenol just to use your money.
Take advantage of catch up retirement contributions if you’re 50+. Didn’t start saving for retirement with that first job? While you might be behind in your savings you don’t have to stay that way. The limits on contributions are actually $1000 higher if you’re 50 or older. So find a way to minimize other expenses so you can max out your contributions.
Defer retirement to help grow savings. This one might not seem like a great tip if you’re nearing retirement age. Unless you’re facing the reality from the comic above that you didn’t save enough and will either need to significantly downsize your life to try to stretch your limited savings or continue working. If you continue working, you can still contribute to an IRA and as the previous tip stated, contribute more.
Take all RMDs to avoid 50% penalty. First of all RMD stands for Required Minimum Distribution. The IRS wants to collect taxes on all of that money you saved for retirement throughout the years without paying them a piece. So once you hit 70.5 years old, they force you to start taking money out whether you need it or not. The catch? If you don’t withdraw all that they tell you to take out they hit you with a 50% penalty. So to avoid losing money to useless penalties, just go ahead and take out the full RMD.
Make estimated payments to avoid underpayment penalties. Did you take our advice from our Divorce Your Job series or our posts on starting your own side hustle? Well watch out for an increased tax liability since you’re now considered self-employed. Make estimated tax payments throughout the year to avoid wasting money on penalties.
Document your business expenses to lower tax liability including up to 100% of health insurance costs. And we don’t mean document like in the comic above. Need tips on how to keep track of all of your business expenses? While Quicken is a software we’ve used in the past and Quickbooks is always a great go-to, maybe you’re not ready to learn a new program. Join us on February 13th at 2:30 PM EST for our free Entrepreneurship class and ask about other tracking options.
Subcontract and deduct non-core administrative expenses. Getting bogged down with administrative tasks instead of focusing on the key activities of your business? Hire somebody else to do it for you and deduct the cost from your taxes. Looking for a virtual assistant to handle calendar management, social media and other admin tasks for you? Allow us to provide those business services for you by the hour. You don’t have to file any tax paperwork until you reach $600 paid for services. The form that you’d end up filing is the 1099-NEC.
Did you find any of these tips helpful? Talk back to us in the comments.
Was this you last year? Granted you had until July in 2020 because…well you already know. But did you still procrastinate?
Regardless of when you actually file your return, we’ve long recommend preparing for tax season throughout the year to try and relieve some of the stress (see our post from over six years ago below 🔽).
Here are some other tips to get you prepped for the dreaded tax season and to keep more money in your pocket. We’ve tried to arrange them in order for those Gen Zers filing for what may be the first time this year on up through the older, wiser generations.
Reduce taxable income by saving for retirement through an employer-sponsored plan. As soon as you’re eligible (it varies from job to job), start making contributions to your retirement plan through your employer. YES, we mean you Gen Z kid that just started your first job out of high school or college. Even though retirement seems a lifetime away, it’s not only cheaper to start doing it now (you can get away with stashing $100/month) but you also end up having less federal income tax taken out of your check because you’re saving for retirement. Oh and there’s another benefit…
Get paid to save for retirement with the Saver’s Credit based on contributions up to $2000. Yes, you read that right! The IRS will actually credit you up to $1000 ($2000 if married filing jointly) if you’re saving for retirement. Here’s how it works: be 18 or older, not a dependent and not a student. Save up to $2000 for retirement through your employer or your IRA (that’s an Individual Retirement Account). After some adjustments to your income on the first couple of lines on your tax return you get your AGI (Adjusted Gross Income) which is what your actual tax bill is based on and determines how much credit you can get for saving. The max credit is 50% of what you saved, hence potentially up to $1000 if you saved $2000. You won’t see $1000 in the form of a refund but it will be subtracted from whatever your tax bill is based on your AGI.
Take advantage of education credits. Did you go back to school and eliminate yourself from being able to qualify for the Saver’s Credit we just mentioned? Don’t worry because there are education credits up to $2000 that you may be eligible for, namely, the American Opportunity Credit or the Lifetime Learning Credit. The qualifications are different for each credit but regardless make sure to keep track of your expenses like tuition, enrollment fees, course-related books, supplies and equipment as both are based on how much you spent on these items.
Claim tax benefits for qualifying relatives. Most people are aware that you can claim children on your taxes. But did you know that if you became the primary provider for a parent or grandchild with all of the turmoil of last year, you may qualify for additional tax benefits. It’s worth checking with your tax professional so start adding up those expenses now.
Optimize your withholdings to meet your financial needs. Feel like too much was taken out of your check throughout the year? Or maybe you had taxes due last year and you’d like to try to avoid that going forward? In either scenario you might want to take a look at your withholdings. The IRS not only provides a tool to estimate your withholdings, but it also walks you through the steps to change them with your employer.
Reduce out of pocket childcare costs if your employer offers dependent care benefits. If you have a tax deduction, oh um a child, and your employer offers you dependent care benefits, make sure you’re using them. This allows you to pay for daycare and extended day with pre-tax dollars. Back in the day when Ms. ME used a dependent care FSA (flexible spending account) for extended day the cost ranged from $50 to $150 a month depending on whether you needed care in the AM, PM or both. So if she needed both, the bill for the year was $1500 with about $58 being taken out of each paycheck before taxes. The pesky part was getting reimbursed from the dependent care account, but your employer could have a better system set up.
Plan ahead for college expenses by saving with a 529 plan. Have those tax dedu- children and concerned about paying for them to go to college? Start saving now. This isn’t a tax deduction for your current return but the earnings made in the plan are exempt from income tax as long as those little buggers go to college and the money is used for those expenses. In some cases you can even use up to $10,000 a year without being taxed to send them to a private K-12 school. The plans vary from state to state so it’s best to check and see what’s available where you live.
Put your tax refund to work by paying off high interest debt, creating an emergency fund, or saving for retirement. We see it year after year, a surge in used car sales and electronics purchases. But thankfully in an early 2020 survey, most U.S. adults were planning to save their tax refund. The trick is to not save it in a low interest rate savings account like Clark below is doing. Schedule your free consultation to learn what higher interest rate options might be best for you.
The second highest response to what people planned to do with their tax refund was pay down debt. This is always a great choice and it seems to be one that a lot of people did last year. The third highest response was covering everyday expenses. Our advice here would be to make sure that those expenses are as low as they possibly can be. Make sure you’re not paying for unused subscriptions or overpaying for auto and home insurance.
We’ve got eight more tax tips coming up in part 2, so check back later today to read them! And as always tell us what you think in the comments or on social media…
So there will probably be no weekly beauty tip since I’m out exploring One Spark this weekend among other things.
But it is April and the tax man cometh, so here’s a article to help make it a little easier next year.
By [http://ezinearticles.com/?expert=Lisa_A_Mason]Lisa A Mason
Don’t wait until the last minute to try to get all of your tax information in order, prep for tax time all year long with some basic organizational strategies. This can be one of the smartest and most important things you ever do. Tax time does not have to be stressful and when you plan ahead throughout the entire year instead of waiting till the last minute, it can make all the difference.
One way that you can do this is by creating folders that allow you to store and organized important tax documents all year long. You can easily make folders for all of your important tax information throughout the year. For example you may have one folder for medical expenses, one for home maintenance, mileage, and additional income. Receipts and documentation for all of these expenditures and incomes should be placed in the folders as they arrive. By keeping up with your basic paperwork throughout the year you can easily be ready for tax time without any hassle or searching for documents.
Tax time doesn’t have to be stressful and is only made so by being disorganized throughout the year. If you are a homeowner then you are aware that any expenses and income related to your home will be applied at tax time, therefore you don’t just scatter home repair receipts all over the place. You keep them together and are ready when the time comes. Small business owners and self employed individuals have to track their income throughout the year and often pay quarterly taxes and income tax. Good record keeping is a must to avoid paying in too much or too little. This will be a very smart move and once you get a routine down, it will be easy to maintain it year after year.
If you usually have to pay in something at tax time set up a savings account to add to through the year to keep from having to come up with a large amount all at once at tax time. Being prepared for tax time is not difficult or even “taxing” it’s just a matter of being organized, having a place for everything and everything in its place. By making simple changes to your organization and filing throughout the year you can not only be prepared for tax time, but may also come to dread it a little less.
It’s just that easy!
About the Author: Lisa Mason is a [http://www.freelancewriter4hire.com/]freelance writer with a specialty in Internet content and SEO articles and the author of How to Earn a Living Writing for the Internet. She has written thousands of articles, hundreds of ebooks and thousands of website pages and related content in more than 10 years as a professional writer.
See her website for a free [http://freelancewriter4hire.com/atd.html]article writing template guide as well as more information about writing and the writing services she offers.
Article Source: [http://EzineArticles.com/?Prep-for-Tax-Time-All-Year-Long&id=5817568] Prep for Tax Time All Year Long