Many people wait until April to start thinking about taxes, but thinking about your taxes before the tax year ends can help save you money.
Get organized and stay organized
Keeping paperwork organized throughout the year can save you headaches.
- Records and receipts. Establish a realistic system for keeping good expense records. Review and organize receipts and financial records towards the end of the tax year to help you decide which year-end strategies are right for you.
- Itemized deductions. Make a list of all your possible deductions. Don’t forget the easily overlooked everyday business expenses such as business cards and copies, etc., as well as the big ticket items.
- Review deductions and tax credits. Visit www.irs.gov to see which tax credits you could qualify for and to review allowable deductions. While you’re there, you can also get all the forms you’ll need.
Year-round tax saving plans
Limit your tax liability as much as possible by making smart choices throughout the year.
- 401(k) plans. The biggest allure of the 401(k) is that you don’t pay taxes on the money you contribute. If your employer offers a matching contribution for each dollar you put in, you’re in even better shape. Some plans will even allow you to “catch up” with contributions in December if you haven’t contributed the maximum earlier in the year.
- IRAs. Individual Retirement Accounts are a great way to reduce your tax liability. You can wait until you file your taxes to make IRA contributions but why wait? Make IRA contributions throughout the year and gain interest while you’re saving tax dollars.
- Pre-pay taxes. If you know you’re going to owe taxes, make payments via quarterly installments. Make the January 15 federal tax payment before the end of December so you can take the deduction as soon as possible.
Year-End Tax Strategies
Even after you think you’ve done all you can do to reduce your tax costs, come December, you can always do a little more.
- Maximize deductions. If you have legitimate deductible purchases to make, do it before the end of the year.
- Charitable contributions. Charities like cash, but they also welcome donations of clothes, household items, sporting goods, and even cars. Donating unwanted items can make for a surprisingly large deduction. Don’t forget to get a signed receipt from a charity representative and be explicit when outlining exactly what was donated.