For many individuals, tax time can be frustrating. Changes to the tax code can often mean that last year’s deductions might not apply anymore or you no longer qualify. Working with a tax professional, such as M-E Accounting & Tax Services, Inc. in Cape Canaveral, FL, can assist you in preparing and filing your taxes. However, there are ways to reduce your taxes before you sit down to file. Here are a few of the potential ways to enjoy tax savings throughout the year before you even file your return.
Income Tax Reduction
If you are receiving refunds every year, then it might be time to consider adjusting your withholding on your paycheck. This can be done using a newly completed W-4. If you have questions about how much withholding you should be taking for your particular income bracket, consult with your accountant or tax professional. They can assist you in determining what changes, if any, you need to make in this regard.
Tax Free Income
There are various options to reduce your tax liability while not reducing your income. Some of these come in terms of money or services that would be considered income, but do not come with the burden of income tax. We have listed a few of them below:
Tax Planning
In order to be prepared for tax season, you need to start planning ahead of time. This means doing things throughout the year that will assist you in reducing your tax bill. By working with your tax professional, you can determine the best course of action for your circumstances. However, it is important to make sure that you plan your tax savings to take advantage of any opportunities by year end.
Areas to Increase Savings
Here are a few of the areas where you can benefit from some tax savings by tracking them throughout the year. These tips can assist you to save funds for other expenses without incurring the additional income tax on those savings.
Flexible Spending Account (FSA) – This type of account allows you to save money for health expenses without incurring the tax on the funds. Thus, you have the ability to use this money to pay for prescriptions, new glasses, or dental visits. Use these funds to cover your out of pocket costs, including co-pays. Depending on the account, you may have a 2-month grace period to use the funds into the new year. Just be aware, that funds left in the FSA can disappear at the end of the year if they are not spent.
Deduct Points Earned for Refinancing Your Mortgage – If you refinanced your home mortgage this year, but it is the second refinancing since the purchase, it could mean that the points spent for the first refinancing could become fully deductible. Therefore, it is important to bring your accountant any information about your refinance as part of your preparation for tax season.
Contributions to an Education Savings Account (ESA) – Here is a chance to lower your tax liability while saving for a future event. By contributing to an ESA, you are eligible to claim a partial deduction on your state return, although you cannot claim the deduction on your federal return. Check with your tax professional to determine if this deduction is available in your state.
Claim Miscellaneous Deductions
While you might opt to claim the standard deduction versus itemizing, you might still be entitled to some deductions or adjustments to your gross income. These include moving expenses, student tax breaks and IRA contributions. Even purchasing an electric car can be considered one of these deductions. In addition, if you have any investments that were losses, you can use those losses to offset any gains in other areas.
Claim Capital Gains and Disaster Loss
By claiming various gains along with disaster losses, you might be able to reduce your capital gains taxes. If you have significantly more losses than gains, you can claim up to $3,000 to offset your ordinary income. Then, the rest can be used as an offset in additional years going forward.
As we have seen, there are many ways to save on your taxes throughout the year. Call or click on the link below to speak with one of our professionals at M-E Accounting & Tax Services, Inc. in Cape Canaveral, FL, to discuss how you can save on your tax liability throughout the year.
M-E Accounting & Tax Services, Inc.