Tax season may not be for a couple more months, but there is no reason why you can’t start planning now. The truth is, the sooner you start preparing for taxes the better.
There is a lot that needs to be taken into account when it comes to filing your tax return and having a head start can help you to avoid last minute stress. If you want to prepare early, here are 3 tips to help with filing your taxes:
Speak with an accountant
If you are feeling unsure about filing your taxes, then you may want to consult an accountant and get their professional help. There are also companies that are open only during tax season that make filing taxes a lot easier.
Tax law can be very complex and trying to navigate the system on your own can be a bit overwhelming and confusing. Having the help of another person who knows their way around tax law can make the entire process go smoothly and in some cases can even help you to get a higher return.
One of the best parts about most of these services is that they are guaranteed. If for some reason there is an error made on your return, they will go back and fix it for you.
Keep all your receipts
When it comes time to file taxes you’ll probably need to look over most of your receipts. Having your receipts organized and saved can really make the entire process of filing taxes easier. You will be able to show proof of the things that you’ve purchased and the money you’ve spent.
Being able to show your receipts can really help you when you are trying to qualify for certain deductions and tax breaks. If there is ever any report that is incorrect then having a hard copy of your receipt can help to clear up the record.
One of the best things that you can do to get through tax season is to make sure that you start filing early. When you file taxes there is a chance that you will owe money. The sooner you are made aware of any money that you might owe the sooner you can start setting aside for that payment.
When you file your taxes you are given a window in which you can make the payment and the sooner you start the bigger the window will be. If you are afraid of being able to make a payment, knowing ahead of time how much you owe can give you enough time to save up.
Filing for taxes doesn’t have to be a grueling experience, if you do your homework and plan ahead there is no reason why the process can’t be simple and pain-free.
How Taxpayers Save Money On Tax?
All taxpayers can save money and reduce tax burdens by taking some significant tax saving steps early in the year. It doesn’t take a lot of planning or foresight. All it needs is for you to be aware of the ways in which you can reduce the money that you pay in the form of taxes. Here are five amazing tips for saving money and reducing tax burdens.
Save Money For Retirement
Tax-saving experts recommend making use of individual retirement accounts to save for your retirement and pay reduced taxes at the same time. You can use either the Roth account or the traditional one. Traditional IRA is that in which the contributions are deducted from taxes and no tax is to be paid on the income before the money is distributed. When using Roth, users can enjoy tax-free earning with after-tax money.
Make Use Of Other Investment And Saving Schemes
Municipal bonds offer triple tax exemptions at the federal, state and county levels. This is a great tax-saving tool. At the same time, you also get to save money in the form of your investment. But, if the interest rates increase then the bonds get hurt. So, they are not totally risk-free. However, this is rare.
Start Your Business
Tax experts recommend starting your own business if you want to reduce your tax burdens and save money. A business owner has more control over taxes and a wider choice too. They can keep the money in the company by writing off company expenses. These are tax-free and thus, they can save this money.
This may seem like the most ridiculous way of saving money and reducing tax burdens. But, not many people are aware that having kids allows parents to qualify for earned income tax credit. Since people are not aware of it, they don’t take advantage of this benefit.
Buy a House
When you buy a house, you qualify for mortgage deductions that can reduce your tax burdens. In addition to reducing the burden, you also own a house. This is especially essential for people paying high taxes. Buy a house when you are young to take advantage of more tax deduction benefits.
These tips should help you save money. In addition, you should also consult a professional company such as ADP solutions to advise you about the lesser-known tax saving methods. They can advise you of the Government tax credits and how you can save money with it.
Saving Tips To Your Income Taxes
A lot of taxpayers don’t really matter of filing all their completed tax return in every year and have them checked. Some are tempted to throw their tax return without inspecting the data shown in the record.
The completed tax return can be a good source of information that can help you manage your future income taxes. So it is really important that you keep them into your archives and have them checked completely. Find out how you can use them for your benefits.
By inspecting and evaluating your tax, you will know if a five percent taxable bond is better or not than a four percent tax-free bond. Furthermore, you need to watch out for the possible credit problems for municipal bonds in the future.
There are hop-scotch deductions that you can do with your tax returns. Just for an instance, you can simply bunch your itemized deductions if you have missed itemized your previous year tax return by paying a premium on charitable contributions or medical deductions.
If possible, by checking your tax return, see if you can convert an interest income and ordinary dividends into qualified dividends. These qualified dividends have a lower income tax rate. So, therefore, it would really be a good option for you to have.
If there are factors that caused your Alternative Minimum tax to be assessed, try if you can eliminate the tax nuisance.
If you have lost your capital carry-over from the previous year and have a large loss carry-forward by the next year, you can definitely have the chance to have merits in uncertain markets without worrying of a large income tax bill.
If you have businesses, normally you have a larger of the income tax bill. But you can assess this if you set some plans to help you reduce your income tax bill. Perhaps employing your spouse or setting up your medical or retirement plan can help.
All these tax advice are just general in nature and many of the taxpayers are applying these general rules. However, you still need to have your financial consultant or tax adviser to be sure that these would give you effective results to your financial management.
It would give you extra savings if you have the effective plans in reducing your income tax bill, thus, you’ll be able to manage your taxes wisely annually.
Read also: Internal Auditing Explained
How to Save on Investment Taxes
Long-term savings are the foundation of stable living. Investing in the security of tomorrow allows you to plan for the kids’ college tuition, retirement, and any other expenses along the way. When you need money the most, a hefty tax burden can threaten your hard-earned cash.
Take a step forward by considering some tax-friendly investment options. Who says Uncle Sam deserves a big piece of your pie? Review the tips below to ensure your fair share.
- After-tax investments. There are endless ways to manage your money, but after-tax investments can, under certain circumstances, yield greater results. Consider the following example: Jason has $5,000 to invest for a period of 15 years. Assuming an annual return of 6.0 percent, his investment will yield a total of $11,982.79. Jason weighs his investment options carefully and includes taxes into his calculations. If he deposits the $5,000 into a 401(k) plan, he will be required to pay taxes on the principal amount and its earnings, i.e., the entire $11,982.79. On the other hand, investing in a Roth IRA allows Jason to invest with after-tax dollars, requiring him to only pay taxes on the initial investment of $5,000.Depending on your income tax bracket, choosing the right investment vehicle can result in big savings. Speak to a professional to consider all your options. The goals of short vs. long-term savings require individual attention.
- 529 college savings plans. Good news for parents: The federal government understands how expensive college can be. Unlike a standard IRA or investment vehicle, 529 plans offer tax-deferred growth and flexibility. Many states allow account holders to contribute $300,000 or more with no yearly maximums or age restrictions. Funds may also be transferred to other family members with educational needs. The best part? Distributions are tax-free. Investors beware, however: Money saved with this vehicle may only be used for educational purposes. If Junior has an expensive school in his future, take advantage of the tax breaks at your disposal. Keep a 529 savings plan in your portfolio.
- Real estate. If you are looking for safer, tax-friendly Investments, real estate serves as an effective option. In addition to tax-deductible mortgage and interest, investment properties allow you to pad your income with minimal effort. Consider the following example:
The Johnsons recently purchased a two-bedroom condo for $130,000 on Chicago’s West Side. Thanks to a 20 percent down-payment, their mortgage, taxes, and insurance costs total a mere $920.00 per month. The Johnsons secured renters for the property at a reasonable $1,450 per month, yielding an annual profit of $6,360.
The Johnsons’ scenario is not uncommon. A buyer’s market offers a multitude of opportunity for the cautious spender. While capital gains are subject to taxation, the lure of immediate profits and yearly tax breaks may be too great to pass up. Keep this option on your shortlist of tax-friendly investments. Assuming the role of “landlord” could result in long-term security.
Easy Ways to Make Your Tax Filing Experience Less Stressful
Filing your taxes can be a stressful experience. There are many forms you need to reference, a myriad of deductions to think about and several deadlines that you have to be aware of depending on your filing situation. However, there are some easy ways to make your tax filing experience less stressful this year.
1. Get Everything Together Before Filing
Doing your taxes is a lot easier when you have all your tax documents in one place. If you worked as an employee, you will get a W-2 from your employer. Independent contractors will get a Form 1099 from any organization that they provided services to.
Anyone who has investment income paid interest on student loans or had debt forgiven in the past year will get forms listing exactly how much needs to be reported to the government.
Do not lose any of these forms. If you forget to report income to the government, you could be audited. Additionally, you could lose out on tax deductions that you are entitled to because you cannot prove that you are entitled to it.
2. Don’t Miss A Single Deduction
Make sure that you check your return for accuracy before you file it. This is because you may have overlooked a deduction that could save you a lot of money. If you run a business, all of your related business expenses are deductible.
Anyone who has an IRA can deduct up to $5,000 a year to their retirement account. You have up to the date that you file in this year to reduce your taxable income last year via an IRA contribution.
3. Look Ahead To Next Year
Investors may find that they have a lot of short-term holdings. This creates a taxable situation where you are required to pay taxes equal to your marginal tax rate on those gains. By holding your investments for more than a year, you can pay a much lower rate on those gains.
Additionally, you may be entitled to deduct health care expenses that equal more than 7.5 percent of your income. Therefore, you can start thinking now about ways to reduce your taxes for the upcoming year.
Never pay more than you owe in tax each year. There are many ways that you can reduce your tax liability without doing anything illegal. All you need to do is keep your tax documents organized, don’t overlook deductions and plan ahead to ensure that you are not overpaying next year.
Get the Most out of Your Tax Deductions
Many taxpayers are unaware of all of the deductions and credits they are entitled to. The most-often overlooked deductions could save you hundreds or thousands of dollars when claimed correctly. By taking the time to research what deductions you qualify for or hiring a professional to find them for you, you can avoid overpaying during tax season.
Aside from the upfront monetary contributions you made to charitable organizations, you should remember to claim deductions for the smaller, incidental expenses involved in charity work. Keep receipts for purchases made for nonprofit events like food drives, bake sales and raffles.
Remember to get letters of acknowledgment from charities if you have $250 or more in itemized deductions attached to a single organization. Also, keep track of miles traveled, parking costs and tolls paid as a portion of these as they are also deductible.
Child Care Costs
Working parents can claim between 20% and 35% of childcare expenses for children under the age of 13. While some employers offer a reimbursement account, those without access to this kind of repayment can receive a credit on their tax return. If you do have reimbursement through your employer and exceed their maximum repayment for the year, you can then file for the credit on the overage.
Employment Search Expenses
The process of finding a new job can be expensive. The IRS offers deductions for the cost of looking for employment. There are several qualified expenses that can be itemized if you are looking for work in your industry of experience, like sales or construction, and the total amount of your miscellaneous expenses are more than 2% of your gross adjusted income. Keep in mind that money spent finding your first job ever do not count and there are restrictions on what can be itemized and what cannot.
State Sales Tax
The IRS allows taxpayers a portion of the sales tax they pay to their state of residence. This deduction can greatly lower the tax obligation for those who live in states that do not collect an income tax. Charts and an interactive calculator are available online that indicate how much residents of each state can deduct.
Sales tax paid on big-ticket purchases can also be added in some cases. You have to choose between the sales tax and income tax deductions when filing, making this a better option for taxpayers without a state income tax.
There are many deductions that taxpayers miss when filing an income tax return. It is important to avoid these most-often overlooked deductions so that you can avoid overpaying your taxes.
Smart Ways to Save Money on Music Lessons
With budget cuts in schools still affecting music classes, you might not know what to do when your little one comes to you and says they really, really want to learn piano, guitar, or drums – maybe even violin! If your child has a passion for mastering a certain instrument and high school band and orchestra just isn’t enough, you could be thinking about private lessons. And you already know they’re expensive. What can you do? Music lessons might not be as out of reach as you imagine. There are plenty of ways to cut costs while letting them pursue their dream.
1. Don’t Start out Private
If your child is just learning the basics of their instrument, it’s better to start them off in local class at the YMCA or a community college class if they’re a bit older. You should be able to find a group lesson for their age range in your area, and that will typically cost a fraction of the price of private lessons. Plus, your child can figure out how serious they are about learning the instrument in a helpful environment where everyone is a beginner. Then you won’t be shelling out big bucks to a private instructor just to have them change their minds a week later.
2. Save on Materials and Instruments
If your child wants to learn the piano and you don’t have a piano, that might be a problem, as they can cost thousands of dollars. But a guitar or other instrument doesn’t have to be pricey. You can find used instruments that work just as well as new ones from music stores, pawnshops, or online classifieds. Once your child gets going on their lessons, it’s easy to find sheet music on the internet or in the library. Your instructor will be happy to work with you on getting the most affordable materials.
3. Think About Hiring a College Student
You might think a young musician isn’t as qualified as an experienced one, but when money is tight, they can be a wonderful alternative. A student from a local music program is actively immersed in music theory and practice, and they can easily pass on what they’re learning on a more basic level to your child. A younger teacher will be enthusiastic and more concerned with doing a good job, and they will probably love making some extra cash for their studies at a far cheaper rate than an older professional would charge.
4. Take Fewer Lessons
If your child is showing talent and passion for their instrument and you want to get them the best quality lessons you can, you both might have to accept shorter lessons or once every other week. Learning once a week is obviously ideal for young musicians, but fitting a few lessons into the budget is better than none, and they can use the alternating weeks to improve their skills on their own – just make sure they devote time to practice!
Consider this – studies have shown that nearly 70 percent of people who apply to medical school who previously studied music get accepted. That’s higher than any other extra-curricular activity. Music stimulates the brain and changes the way a child processes information. It’s a wonderfully rewarding way for kids to spend their time. It might be a stretch for your pocketbook, but with a few adjustments, it can all be worth it.
Read also: How to Get a Tax Job