Saturday, November 26, 2016, PM | Leave Comment
It’s easy to only think of taxes during tax season because we force ourselves to think taxes at that time of the year.
However, anyone who is financially savvy knows making changes throughout the year can give you the best chance to make a difference in your tax bill.
With more than a quarter of the year left, now is a great time to make small adjustments that can have a big impact come tax time.
Check out these four easy ways to lower your 2016 tax bill before the New Year.
Contribute to your retirement plan
If you have access to a retirement plan through your employer, consider increasing the amount withheld from each paycheck.
Even with a modest increase in contributions, you still have time to make a significant difference before December 31.
If you use a traditional 401(k), 403(b), or similar plan, your contributions reduce your taxable income for this year.
If you have an IRA or other retirement plan that allows you to add money after the end of the year but before you file your return, it can be easy to put off making contributions.
However, that strategy may not be the best choice.
For one thing, it’s easier to put the money aside little by little instead of trying to come up with the entire amount at tax time. By waiting, you risk not being able to contribute as much as you would have liked.
Plus, the sooner you contribute to your retirement plan, the sooner your money starts working for you.
Make cash and noncash donations
Instead of waiting until December 31 to donate to your favorite charity, why not do it now?
This is the perfect time of the year to sort through clothes, kid’s toys and any outdoor equipment you no longer need.
Give unwanted items to a local charity and get a receipt to document what you contributed.
If you donate an item worth more than $250, get a statement from the charitable organization that describes the item and whether you received anything of value in return. You will have to supply the valuation of the donated items yourself.
It’s also a good idea to make charitable cash contributions now. If you wait until after the holiday season, you may be more pressed for money.
To make it easy, set up a regular charitable contribution plan.
In some cases, you can select a set amount to be deducted from your paycheck and directly deposited to a charity. Or you can set up a recurring charitable gift online.
Save taxes and energy at the same time
As summer winds down, it’s smart to think about the energy saving measures you can take now to avoid large utility bills when winter comes. And you can even lower your tax bill in the process.
When you buy insulation, windows, doors or a roof look for products that come with a manufacturer’s credit certification. It could mean you qualify for a 10 percent credit on your cost courtesy of the Non-Business Energy Property credit.
Just keep in mind the credit is limited to $200 for windows, $50 for a furnace circulating fan, $150 for a furnace or boiler and $300 for any other single residential energy property cost. The total lifetime limit is $500.
The Residential Energy Efficient Property credit gives you 30 percent back as a credit on your tax return when you buy alternative energy equipment.
This includes items such as solar energy systems, fuel cells, small wind energy systems or geothermal heat pumps.
Fortunately, this credit has no limit. And, if you can’t use the entire credit this year because your income taxes are lower than your credit, you can carry the unused portion forward to next year.
Organization is the secret to good planning
This time of year is also a good checkpoint to assess your finances. It’s hard to plan for your taxes if you don’t know where you stand.
Take the time to review your income and any tax-related expenses you’ve accumulated so far this year.
Sort through receipts, organize important documents and tuck them away in a safe spot so you won’t miss an important deduction when you file your return.
Once your information is organized, set aside a few minutes to estimate your 2016 taxes. Doing so will help you determine if the right amount of tax is being withheld from your paycheck.
If you’re having too much or not enough withheld, use Form W-4 to adjust your withholdings.
If you’re self-employed, estimating your taxes is the best way to know if you’re paying enough in quarterly estimated taxes.
Staying organized will help you make smart decisions for the rest of the year.
How often do you schedule check-ins with your finances throughout the year?
This article appeared first on TaxAct Blog.