Whether you are an employee or employer, there are things that you should do during the year that will result in tax savings.
You are an employee. You’ve just done your taxes and you say to yourself “I don’t have to worry about taxes until next year.” That is not exactly true and here are some things, as an employee, you should do during the year.
- Check to see if your employer offers dependent care benefits as a pre-tax deduction from your pay. This can be a significant tax savings if you have children who need either day or after school care.
- Check to see if your employer offers transit passes. This is another way to pay for your commutation expenses getting to work on a pre-tax basis.
- Of course, as many of you know, you should max out your flex plans and any type of pre-tax spending plans which your employer offers. This is another way you can save significant dollars, which is good for anybody in any tax bracket, but especially for higher wage earners, who are subjected to higher tax rates.
- Now that your taxes are done, this would be a good time to check and see if you are meeting your retirement goals and using the 401K, 403B, employer sponsored pension plan, whatever your employer offers as a pre-tax benefit.
All of these pre-tax items can significantly lower your tax burden. When you get your taxes prepared next year, you will be in much better shape. You will also have this wonderful gift of feeling proud of yourself and making yourself look good to your preparer because you planned.
If you own a small business, here are some tax planning ideas for small business people.
- If you don’t have one already, institute a pension, SEP IRA, SIMPLE IRA or 401K plan. This could provide you and your employees with significant tax benefits and also is a way of attracting and keeping better employees. Instituting a dependent care benefit plan for yourself and/or your employees, who need this type of arrangement, would also provide tax and retention benefits.
- Consider making major purchases of equipment and strategizing the use of beneficial depreciation deductions, which are available to small businesses
- Consider meeting with your accountant on a monthly, quarterly or semi-annual basis depending on the size of your business. These meetings can prove helpful not only in tax planning, but also in business planning decisions that involve insurance needs, financing, and investment options. Since so many of us own businesses for the purpose of providing ourselves with a living based on those businesses, do not overlook the personal part of your insurance, financing, and investment needs.
These and many other tactics can help you be prepared when tax preparation time rolls around. Who knows? If you do some of these things not only will you save money but your accountant may even give you a gold star.