Many of you probably don’t start thinking about your taxes until after the New Year, and maybe even a little later than that. But with a little pre-planning, you can actually rack up significant tax savings when it is time to file. How many of the options described below can you start doing today in order to save on next year’s taxes?
1. Contribute More to Your IRA
Making regular contributions to your retirement plan enables you to pay less tax come tax time, because the contributions are subtracted from your taxable income. If you can afford it, contribute even more each month. This will lower your yearly taxable income, meaning you’ll pay less in taxes. As a bonus, you’ve also contributed more to your retirement.
2. Make Charitable Donations
Do you often find yourself throwing away old clothing, books or other household items that you no longer use or need? Instead of tossing them, you can donate them to charities such as Goodwill and the Salvation Army. Just be sure to get a receipt for your donation. Monetary donations are, of course, also helpful in lowering your taxes, and you’d be surprised how much a few bags of clothing or other items can add up to.
3. Take Advantage of Tax Incentives
Many states offer tax rebates for various purchases or other actions you may take throughout the year. For example, purchasing some energy efficient appliances, installing solar panels or purchasing an electric car can get you rebates for Consumer Energy Efficiency when you file your taxes. Incentives and rebates vary by state, so look into your state’s rebates to see how you might be able to benefit on tax savings.
4. Keep Track of All Business-Related Expenses
If you own your own business, have a home office or work on a contract or freelance basis, then you also undoubtedly incur business expenses. But if you don’t keep careful track of all your expenses, you may not remember to deduct them all when tax time comes. Use apps that can scan receipts or take advantage of other expense reporting software so you can be sure to have every last expense accounted for.
5. Keep Track of Health Insurance and Medical Expenses
If you apply for insurance through the Healthcare Marketplace, making sure all information given to the marketplace is accurate is fundamental to ensuring the proper tax credit. Additionally, medical expenses may also be deducted, so keep all bills from doctors, specialists, dentists and pharmacists organized so you can easily calculate them at tax time.