When it’s not tax time, there are things that all taxpayers should do in order to alleviate their tax burden for the next year.
- If you are an employee, and are either getting too large of a refund or having to paying taxes, you might want to check your withholding. By changing your withholding status or your number of exemptions, you can stop giving the IRS interest free loans, or put yourself in a position where you don’t have to pay so much at the end of the year.
- Those individuals who have self employment income and/or dividend capital gain income may want to analyze their estimated taxes to make sure they’re not over paying and giving the IRS an interest free loan, or underpaying and having to pay interest at the end of the year.
- This is a good time to analyze whether or not you want to increase 401k, 403b, or other types of deferred compensation plans.
- For employers or people in business, it’s a good time to set up qualified plans. Remember, however, IRA and SEPs can be funded up until April 15 of the following year. Qualified plans such as a 401k, 403b, or a Simple plan, must be in effect during the tax year and cannot be formed after the fact.
- People with investment income might want to setup and manage capital gains and losses to make sure that taxes aren’t taking too much of a bite out of their profits. However, remember, Economics First. You don’t want to be in a position where you don’t sell a stock because there is a tax. If the stock starts to go down, it can eat more assets than the tax you would pay on the sale.
- Because of the limitation on medical deductions, if you know you are going to have a big out-of-pocket dental or medical expense, you might want to group those payment into 1 year instead of paying it over 2.
- All parents and grandparents want to save up for college for their children. Section 529 plans are a great way to do that, but here is a little known fact. Even if you didn’t set up a 529 plan and your child is already in college, if you put the money you have to pay for tuition in a 529 plan first, then take it right out and pay the tuition, you will then be eligible for a State tax deduction in most states.
These are some of the ways you can prepare when it is not tax season that will make next tax season a more wonderful one than this one might have been. If you have any questions, or would like to discuss what you can do to lessen your tax burden, please give us a call.