by Dave Horwedel, EA
You may be tempted to forget about your taxes once you’ve filed your tax return, but if you start your tax planning now, you may be able to set yourself up for a big savings next year!
Here are six tips to save you time and money on next year’s taxes:
1. Keep tax records safe
Place your last year’s tax return and supporting records and documents in a safe place. If you ever need your tax return or records, it will be easy for you to get them. If you are familiar with computer systems, you can save or scan your records into the computer and get rid of needless paper. Make sure the records are legible in scanned form and are properly backed up.
2. Take action when life changes occur
Some life events such as a change in marital status or the birth of a child can change the amount of tax you pay. When they happen, you may need to change the amount of tax withheld from your pay. To do that, file a new Form W-4, Employee’s Withholding Allowance Certificate, with your employer.
3. Report changes in circumstances to the Health Insurance Marketplace
If you have enrolled for health coverage through the Health Insurance Marketplace and receive advance payments of the premium tax credit in 2016, it is important that you report changes in circumstances, such as changes in your income or family size, to your Marketplace.
Advance payments of the premium tax credit provide financial assistance to help you pay for the insurance you buy through the Marketplace. Having at least some of your credit paid in advance directly to your insurance company will reduce the out-of-pocket cost of the health insurance premiums you’ll pay each month.
However, it is important to notify the Marketplace about changes in circumstances to allow the Marketplace to adjust your advance payment amount. This adjustment will decrease the likelihood of a significant difference between your advance credit payments and your actual premium tax credit.
4. Choose your tax preparer wisely
If you want to hire a tax preparer to help you with tax planning, start your search now. If you already have a tax preparer, give him or her a call and find out which tax planning strategies you can use this year. Also, check to see if your preparer is an enrolled agent, CPA, or lawyer. These professionals have had to pass stiff examinations to get their license, and also are required to do Continuing Professional Education every year so they don’t mis-advise you. If your preparer does not hold one of these licenses, suggest he take the enrolled agent exams. If he knows his business and is a pro, he will pass.
5. Consider itemizing
If you claim a standard deduction on your tax return, you may be able to lower your taxes if you itemize deductions instead. Review what is deductible on Schedule A or get with an Enrolled Agent to sort it out. Also, be aware of the fact that any deductions you create that when totaled fall below the standard deduction give you no tax benefit. Let’s say you plan a $5000 charitable deduction at the the end of every year to your church, and in 2016 this will bring your total itemized deductions close to but slightly below your standard deduction. You get no tax benefit from this donation. Well, that is fine in one sense as you wanted to make the donation to help your church. But why not make the $5000 donation on January 1st of 2017 and make another donation on December 30th 2017. Your church will be just as happy, and in 2017 you will get a tax benefit as the $10,000 donation that year will put your itemized deductions well above the standard deduction.
If you learn to think with deductions, credits, and taxes, you can save your future tax dollars. Now is the time to do so. Tax pros are usually quite happy to assist you on tax planning in the summer. Somehow, it does not seem to work as well on April 14th.
For help with tax planning, or any other help you may need, contact Torchlight Tax and Financial Solutions.