Tax Day has come and gone, but you aren't quite finished with your taxes yet. Were you happy with the refund you received? Did you owe more tax than you thought? Here are some things to consider and steps to take now to minimize your tax owed and make sure the next Tax Day doesn't catch you off guard.
1. Defer Income to Retirement - A great way to save on taxes while hanging on to your money is to defer your income into a retirement through work or into an IRA. There are several different options available to you and you should consult your tax adviser and your financial adviser to figure out the optimal choice for your situation.
2. Defer Income to a Health Savings Account - If you have a high deductible health plan, you might consider opening a Health Savings Account. This is a great way to save on tax dollars and you can put away money to cover medical bills and prescriptions.
3. Keep Your Health Exchange Profile Up-To-Date - If you purchase your health insurance through the government Health Exchange, go online at least once per quarter and make sure that you update any changes to household income. This will prevent you receiving an excess of the Advanced Premium Tax Credit and will hopefully help you avoid having to repay the excess on your tax return at the end of the year.
4. Update Your Withholding At Work - You should update your withholding at work at least once a year using Form W-4. Income can change annually with raises, bonuses, and other changes in employment. Maybe you even made enough to cross into a higher tax bracket. When tax season ends, you are already 1/3 of the way through the year. Consult with your tax adviser to see what you should adjust your withholding to or use the IRS' Withholding Calculator.
5. Keep Your Books Up-To-Date - If you are self-employed, the best tool you have is your Profit & Loss statement. Make sure you keep your books current so you can ensure that your quarterly estimated tax payments are appropriate. Your tax adviser will estimate your quarterly payments based on your prior year's income, but if your income grows, you probably want to adjust those payments to cover the difference. This is easy if you have current financial statements for your business.
6. Keep Your Receipts - Do you itemize your deductions? A common phrase heard at tax time is "I didn't keep the receipt so I guess I can't take the deduction." Learn your lesson now and start keeping those receipts for charitable donations, unreimbursed work expenses, and medical expenses. If you haven't been tracking medical mileage, volunteer mileage, or non-commuting work mileage but could potentially qualify to deduct it, start tracking it now!
Take the steps now and create the good habits now that will carry you through the year. Your future self will thank you next tax season when you save yourself some tax dollars!