While we all must file our taxes annually, there are plenty of ways to create tax savings throughout the year. Working with your tax professional at James Wells EA MBA Tax Office in Santa Cruz, CA, can assist you taking advantage of these savings options before you sit down to file your taxes. Below are just a few of the areas that you might need to discuss with your tax preparer to see if you can maximize these savings.
If you had a large tax refund, chances are you have too much tax being taken out of each of your paychecks. Consider filing a new W-4 with your employer to insure you receive the money you are earning right away. Working with your tax preparer, you can determine the right number of allowances for your situation. If you recently expanded your family through a birth or adoption, consider revising your W-4 right away to add the extra allowance for your new addition.
Reducing your taxable income is the fastest way to reduce your tax liability. Therefore, consider increasing the amount of your payday contribution to your retirement fund or 401(k). If you do not have a 401(k), consider starting one to take advantage of this opportunity to save for the future and reduce your tax liability at the same time. Talk with your tax professional at James Wells EA MBA Tax Office about the maximum contribution you can make per year.
The only potential risk with not paying taxes on your retirement savings now is that the taxes in the future on those funds will be hirer upon your withdrawal. A Roth 401(k) allows you to save retirement funds paying today’s tax rate. Thus, when the funds are withdrawn, they will be tax-free. Talk with your employer to find out if a Roth 401(k) is available to you. Any funds you convert into a Roth from a non-Roth account will require you to pay income taxes. Essentially, you are giving your future self a tax break with this option.
Depending on your company, you might have to ability to take additional courses toward a college or graduate degree and allow your employer to pick up the tab. You receive the benefits on your resume, while not incurring the income on your W-2 for the year.
If you are planning on leaving your job during the year, make sure to pay back any loans you might have taken against your 401(k). Otherwise, those loans will be counted as a distribution and be subject to your top tax bracket and any early withdrawal penalties as well.
If your employers offer a child-care reimbursement account, take advantage of it. You can contribute pre-tax dollars that can then be used to cover child care throughout the year. Thus, you can cover that expense without taking it out of your taxed income, avoiding both income and Social Security taxes on this contribution.
Instead of making a normal contribution of cash to charity, consider donating stock or mutual funds that you have owned for over a year that have appreciated. Doing so means that you can claim the deduction of the fair market value of these securities, while not being taxed on the profit. If they lost money, consider selling them, claiming the loss and then donating the cash to the charity of your choice.
When determining your property settlement in your divorce, just remember that any property is sold, the gains and losses will be subject to taxes. Therefore, you want to make sure to consider these potential tax liabilities when determining your final settlement. In addition, remember that the payer of alimony has a tax deduction, while the receiver now has additional taxable income. On a happier note, getting married can also mean should adjust your W-4 to reflect the combined tax bill you will now have as a couple.
Finally, it is important to note there are many additional options available for tax savings all throughout the year. By working with your tax professional, you can take advantage of individualized savings options. Call or click on the link below to contact the accountants at James Wells EA MBA Tax Office in Santa Cruz, CA.
James Wells EA MBA Tax Office