May 1, 2023
Tagged As: Personal, Wealth Management
Now that you’ve finished filing your taxes, you probably don’t want to think about them until next year. But there are a number of things you can do all year long to make next year’s tax season go smoother and potentially even reduce your taxable income. Here are some tax tips you can take advantage of all year long – not just when taxes are due.
Keep Accurate Records
One of the most important things you can do to make tax season easier is to keep accurate records. This means keeping track of all your income, expenses, and receipts throughout the year. It can be helpful to use a spreadsheet or accounting software to keep everything organized. Additionally, keeping a record of charitable donations, medical expenses, and business expenses can help reduce your tax bill.
Maximize Your Retirement Contributions
If you have a retirement account, such as a 401(k) or IRA, make sure you are contributing the maximum amount allowed each year. Not only will this help you save for retirement, but it can also lower your taxable income, reducing the amount of taxes you owe. Additionally, if your employer offers a matching contribution, make sure you are contributing enough to take advantage of the full match.
Retirement accounts can be categorized in two ways as they relate to taxes:
Tax-deferred retirement account: A retirement account that allows a taxpayer to delay paying taxes on the money invested until it is withdrawn, generally after retirement. An employer-sponsored 401(k) and traditional IRA are two common types of tax-deferred savings plans.
Your contributions to an employer-sponsored tax-deferred account are excluded from income taxation at the time of deposit. Similarly, contributions to a traditional IRA are deductible on your income taxes up to the limits established by the IRS. Therefore, your contributions to tax-deferred retirement accounts can reduce your income and as a result, can reduce the amount of income tax you owe.
Tax-free retirement account: An individual retirement account that offers tax-free growth and tax-free withdrawals in retirement as long as rules set forth by the IRS are met. The only type of tax-free retirement accounts are a Roth IRA or a Roth 401(k). The account is funded with after-tax money and grows tax-free and remains tax-free when withdrawn in retirement as long as the rules are followed.
Take Advantage of Tax Deductions
There are many tax deductions available that are often overlooked. For example, if you work from home, you may be eligible to deduct a portion of your home expenses, such as rent or mortgage payments, utilities, and internet service.
Additionally, if you have children, you may be eligible for the child tax credit or the earned income tax credit. Make sure you research all the available deductions and credits to see if you qualify.
An important note: taking advantage of individual tax credits like these means you must itemize your tax deductions. That means you cannot also claim the standard deduction available to taxpayers, which may or may not have a beneficial impact on your taxable income. Talk to a tax professional for advice on your specific situation!
Don't Wait Until the Last Minute
Many people wait until the last minute to file their taxes, but this can lead to unnecessary stress and mistakes. Instead, start gathering your tax documents and preparing your tax return as early as possible. This will give you time to review your return and make any necessary changes before the deadline.
Consider Hiring a Professional
Many folks choose to do their own taxes. But if you found yourself stressed and overwhelmed this tax season, it could be helpful to hire a professional next year. They can help you maximize your deductions and credits, and can ensure that your return is accurate and complete. Additionally, if you have a complicated tax situation, such as owning a business or having multiple sources of income, a tax professional can help ensure that you are following all the necessary rules and regulations.
Resources for Taxpayers
If you have questions about your taxes, there are many resources available to help. The IRS website is a great place to start, with information on tax forms, deductions, and credits. Additionally, many tax preparation software programs offer customer support and resources for taxpayers. If you need more personalized assistance, consider reaching out to a tax professional in your area. You can also reach out to us for your tax document needs! Just click the chat button below, call us at 1-800-445-5725 (1-800-HILLSBK), or stop by any of our locations.
Tax savings opportunities will vary from person to person - please consult your tax advisor regarding your particular tax situation.
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