Benjamin Franklin said "but in the world nothing can be said to be certain except death and taxes.”
This year the deadline for filing your taxes is April 17th instead of April 15th, because April 15th is a Sunday and April 16 is the Emancipation Day holiday in the District of Columbia.
Tax Planning is simply taking advantage of all the tax laws and tools at your disposal throughout the year in order to pay less taxes. You should be taking any needed steps to qualify for the right tax credits and also to maximize tax deductions.
Two main ways to pay less taxes:
- Tax Deductions: lower your taxable income
- Tax Credits: lower your taxes dollar-for-dollar
If you are high income earner, tax deductions are typically more valuable than a tax credit.
Two Easy Steps:
1.) Paycheck Withholding
Getting a tax refund isn't a good thing! Even though it may feel like it. A tax refund is nothing more than money you over paid in taxes. You should not view a refund as forced savings! If you are, you need a plan. Recent IRS statistics show that over 70% of all Americans get a tax refund check. Every month most taxpayers pay an average of $200 too much in income taxes.
To find out how much in tax you should be paying each paycheck, I have a calculator on my website. Go to http://jasonwqualls.com/Resources.html
2.) Keep Great Records
The IRS recommends that you keep all tax records for 3 years in case of an audit.
Here are some examples of tax-related documents I suggest you should keep:
- W-2 forms
- Pay stubs for the year
- Mortgage payment stubs and/or home purchase closing statement
- Receipts from anything you might claim as a deduction
- Receipts from any charitable donations (e.g. for church tithes, disaster relief donations, etc.)
- Car mileage log if used for business
- Any receipts for business travel expenses
- Canceled checks (especially for IRA contributions and other deductions)
- Credit card statements and bank statements
- Medical bills
7 Easy Tax Planning Tips:
- Start a file folder at the beginning of each year to keep all of your receipts.
- Check your pay stubs against your W-2 to make sure they add up.
- Study last year's tax return. Are there any credits and deductions which you are you still qualified to take? Are there any you did not take, but for which you now qualify?
- Deduct the cost of last year's tax preparation.
- Work with a CFP to make sure your taxable investments are being managed efficiently.
- If you do get a refund, you should save it or pay off debt.
- Try your very best to itemize.
Do you pay for parking at work? You may be able to deduct what you paid for parking at work.
Do you use your car for business?Your mileage may be a deduction.
Have you gone on work related trips? If you keep your receipts, you can deduct the cost of travel expenses, baggage handling, lodging, meals, business phone calls, and even dry cleaning.
Have you lost your job? Changed jobs? It costs money to look for a new job, and you may be able to deduct these job search related expenses.
Did you move to be closer to work or to take a new job? You may qualify for a deduction of your moving expenses.
Do you work from a home office? You may be able to deduct certain expenses, such as internet and cell phone service, furniture, insurance, and security.
Do you belong to a union? Union dues and initiation fees are deductible.
Do you make retirement savings plan contributions? You may be able to get a tax credit for your qualified contributions.
Did you make any energy efficient upgrades to your home? Some may qualify for a deduction or a credit.
Did you have a large amount of medical expenses? You may be able to deduct any medical expenses that exceed 7.5% of your income.
If you own Long Term Care insurance some of the premiums may qualify for a deduction.
Did you gamble and win? Lose? All gambling winnings must be reported as taxable income. But, gambling losses may be claimed as deductions, up to the amount of your winnings.