Save More On Your Taxes
Having tax regrets? Here are 5 ways to pay less and save more on your taxes
(BPT) – Most of us know the feeling: Tax season can be a frustrating and stressful time. You have to gather lots of documents, remember all the changes in your life over the past year that might affect your return, and file the required paperwork before tax day rolls around. It’s worth it though to save more on your taxes.
And while you do all of that, there’s always that nagging feeling: Did you take advantage of all the deductions and credits the IRS has to offer? Is there more you can do to prevent taxes from eroding the value of your investment portfolio and eating away at your income? Are you prepared for the changes that are coming due to the new tax law?
Like thousands of others, you might be experiencing a “tax hangover,” that sense of regret that you overlooked some fine detail, that you could have paid less and ended up with more money in your pocket.
The truth is: Your taxes shouldn’t be top of mind just once a year. Tax planning is an important part of overall financial planning, and there are things you can do now to avoid having another exhausting experience next year.
The best place to start when you want to save more on your taxes is to set up a meeting with a financial planner who can work with you to optimize your taxes and better integrate them into your financial plan.
“Figuring out the best approach to your taxes can be challenging, and the new tax law won’t make things any easier next year,” said Geoffrey Brown, CEO of the National Association of Personal Financial Advisors (NAPFA). “That’s why now is the right time to find a professional advisor who can help you get the best possible outcome.”
To give you an idea of what you might be missing, NAPFA offers these five tips:
1. Get into a lower bracket. Your first tax strategy should be to try to get into a lower tax bracket. Individuals who make $38,700 ($77,400 if married) pay a base rate of 12 percent. If you make more than that, you jump to a rate of 22 percent. That’s a huge leap! You should aim to be at the top of the lower bracket. To do this, focus on maximizing deductions that lower your pretax income, such as contributing to a 401(k) or a Health Savings Account (HSA).
2. Be aware of withholdings. With the new tax law affecting your next return, you should double-check what’s being withheld from your paycheck. Due to the big changes in the tax code, your withholdings could suddenly be too high or too low. If you withhold too little, you might owe more than expected during next year’s tax season. You also want to make sure you’re not withholding too much – in essence, you’d be loaning the government money when you could be investing it much more sensibly. Be sure to talk with a financial advisor to check whether you’re withholding the right amount.
3. Put money into an HSA. If you’re in relatively good health and your company offers an HSA as part of a benefits package, you should enroll and contribute to it. HSAs have the wonderful attribute of being almost completely tax-free and goes a long way to save more on your taxes. Your contribution isn’t taxed when you put it in, and it isn’t taxed when you take it out, either. In many ways, this is a tax-free savings account you can use toward your retirement.
4. Know how your kids fit in. One of the biggest changes in the tax code that will affect families’ 2018 filing is the fact that the dependent deduction is no longer available. That means you can no longer deduct your children as dependents. However, the Child Tax Credit, which previously only applied to low-income taxpayers, is now available to taxpayers with much higher incomes. If you have dependent children on your tax return, you need to be aware of how this switch from dependency exemptions to tax credits will affect you.
5. Plan ahead. Taxes aren’t something you do once a year. Set aside time with your financial advisor to do some tax planning exercises and make sure you are paying the lowest amount possible over the next few years. This includes forecasting your income and planning out when it would make more sense to itemize versus taking the standard deduction. This allows you to decide when to have elective medical procedures or increase your charitable giving, while still minimizing your tax burden.
Everyone has different financial goals and is in a unique financial situation – and taxes are a key part of the equation. By speaking with a personal financial advisor now, you can plan ahead to save more on your taxes and ensure the next tax season doesn’t end in another tax hangover. To find an advisor near you, visit www.napfa.org and use their Find an Advisor Tool.
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I haven’t been making use of the HSA my company offers and I think I have been missing a lot. I made some research based on what you just said and I found out that I could actually save more on your taxes by using the HSA plan my company offers. I would definitely enroll into this as soon as possible. Thanks for this timely info.
Thanks for stopping by Susan. Always take advantage of plans your employer offers to save more on taxes.
I just got my first job after graduating last year and my employer also offers an HSA. I wasn’t very clear in my understanding as to how it could benefit me, but now I am, and I enrolled. I think it’s a great way to save on taxes.
When is it appropriate to consult with a financial advisor? I feel like my taxes are pretty straightforward, but would you recommend an advisor for everyone? I always try to maximize deductions and watch my withholdings. They need to teach more of this stuff in schools!
Thanks for your question, Nadine. If you normally file a simple return using the standard deduction, and your only income is from W-2’s and bank interest, you wouldn’t need one. If you have a Schedule C or a Schedule E, and more, it usually pays you to use a professional. I’ve been preaching for years that personal finance and taxes should be a required course starting with the first year in high school.
Thanks for the tips on being prepared better to file your taxes. Planning can save a lot of headaches at tax time.
Thanks for your comment Sarah and glad that we can be of help to you.