Tax planning is a series of strategies for minimizing the percentage of your income you must pay to the IRS. These strategies can include claiming deductions and credits.
As you prepare for your next tax year, take the time to assess your current financial situation and make changes accordingly. Taking the necessary steps early will help you maximize your tax benefits and keep your finances organized for years.
Keep Track of Your Itemized Expenses
Many business owners need help keeping track of their itemized expenses, but it’s crucial to do so to take advantage of tax deductions. There are two types of fees: the cost of goods sold, which are costs related to producing your products, and operating expenses, which include rent, salaries, business licenses and permits, and self-employment taxes.
Whether you use expense tracking software or a spreadsheet, keep records of all expenses over $50. It helps separate unreimbursed costs from deductible ones, and it’s also an excellent way to ensure that your tax filing is accurate.
Look for Opportunities to Move from Being a Consumer to a Producer
Making the most of your money is crucial to tax planning and preparation Somerville NJ. Some people may find it difficult, but it is doable with the correct information and tactics.
The best way to make your money go further is to use the many pretax savings tools available. These include retirement accounts like 401(k)s and IRAs, health savings accounts, and college savings plans like 529s.
Finding ways to change from consumer to producer is another intelligent approach. It is the most effective route to help you pay off your debts sooner and enjoy more wealth later. The key to being a producer is seeing what you can produce with your talents, skills, and resources.
Take Advantage of Pretax Savings Tools
You can use pretax savings tools by contributing to 401(k) plans, IRAs, and other retirement accounts. These tax-advantaged accounts are designed to encourage you to save money for your retirement, medical, or education expenses.
Many workplaces offer employee-sponsored 401(k)s and Roth 401(k)s, as well as traditional IRAs. If you work for yourself, you could also be eligible to make pretax contributions to a solo 401(k) plan.
Similarly, health and dependent care FSAs allow you to deduct pretax amounts from your paycheck and use them for eligible healthcare costs. In addition, you can save for commuter expenses with a transit and parking reimbursement account (T/PRP).
Maximize Your Deductions
Deductions can make it easier to keep more of your income. They can also help you get a bigger refund or pay fewer taxes at tax time.
Most taxpayers take the standard deduction of $6,350 for single people and $12,700 for married couples filing joint returns in 2017. The new tax law nearly doubled the usual deduction amount for all filing statuses.
The most common deductions include mortgage interest, charitable donations, and medical expenses. However, there is a $10,000 limit on the amount that can be deducted for state, municipal, and property taxes.
Consult with an Expert
If you have tried to tackle your taxes and failed miserably or are spending more time than you want to waste your resources, consulting with an expert may be a good idea.
Experts specialize in specific disciplines, so they know how to do the job quickly and efficiently. They are also often well-connected and have many contacts within their industry.
Consulting with an expert can also help maximize your tax benefits with other financial planning strategies, such as maximizing pretax retirement and health savings accounts or charitable giving. For example, the deductible donation of long-term appreciated assets is generally a great way to lower your taxable income and minimize capital gains taxes.