Tax season might be a yearly event, but there are ways to save on taxes all year round. Build Em Up Bookkeeping wants to help explore smart saving strategies that can increase your take-home pay and put more money in your pocket. We’ll also delve into how the recent changes to the W-4 form might impact your tax return this year. As always, Build Em Up Bookkeeping is here to help with you specific tax needs.
Utilize Tax-Advantaged Accounts:
- 401(k) or 403(b): Contribute to employer-sponsored retirement plans. Contributions reduce your taxable income now, and your savings grow tax-deferred or tax-free (depending on the account type) until withdrawal in retirement.
- IRAs: Open an Individual Retirement Account (IRA) and contribute earned income. Traditional IRA contributions are tax-deductible, while Roth IRA contributions are made with after-tax dollars but grow tax-free and can be withdrawn tax-free in retirement (conditions apply).
Maximize Dependent Care Accounts:
If you pay for childcare to work or attend school, consider a Dependent Care FSA (Flexible Spending Account). Contributions are made with pre-tax dollars, reducing your taxable income and lowering your tax bill.
Health Savings Accounts (HSAs):
If you have a high-deductible health insurance plan, you might be eligible for a Health Savings Account (HSA). Contribute pre-tax dollars to cover qualified medical expenses and enjoy tax-free growth and withdrawals for these expenses.
Review Withholdings:
Understanding the New W-4: The W-4 form, used by employees to indicate federal income tax withholding, underwent a significant overhaul in 2020. Previously, withholding allowances were used to estimate tax liability. The new form eliminates allowances and focuses on entering additional income sources and claiming dependents.
Impact on Tax Returns: This shift might have resulted in changes to your tax withholding throughout the year. If you haven’t reviewed your W-4 since the update, or your income or filing situation changed, your tax withholding might not be optimal. This could lead to a larger or smaller tax refund than you anticipated.
How to Respond: It’s wise to review your W-4 form to ensure it accurately reflects your current situation. You can request a new W-4 from your employer and adjust your withholding if necessary. This can help avoid owing taxes come filing season or receiving a much smaller refund than expected.
Consider Itemized Deductions:
If your itemized deductions (like mortgage interest, charitable contributions, state and local taxes) exceed the standard deduction, you might save money by itemizing. Consult a tax professional or tax software to determine if itemizing benefits you.
Claim All Eligible Deductions:
Many taxpayers overlook deductions they’re entitled to claim. Research common deductions like business expenses, student loan interest, and medical costs exceeding a certain percentage of your income.
Invest Strategically:
While investment income is generally taxable, there are strategies to minimize taxes. Look into tax-efficient investments like municipal bonds, which often offer tax-exempt interest. Capital losses from selling investments at a loss can offset capital gains, potentially reducing your tax liability.
Be Mindful of Freelance Income:
If you earn freelance income, set aside money throughout the year to cover estimated taxes. This helps avoid penalties for underpayment come tax season.
Keep Good Records:
Maintain a paper trail throughout the year. Save receipts for potential deductions, keep track of mileage for business purposes, and document charitable contributions. Good record-keeping makes claiming deductions on your tax return much easier.
By incorporating these tax-savvy strategies into your financial routine, you can keep more money in your pocket throughout the year and potentially enjoy a more rewarding tax return come filing season. Remember, small steps taken consistently can lead to significant savings and a more secure financial future.
Build Em Up Bookkeeping is Fremont County’s go to virtual tax preparer. Established in 2010 and virtual since 2016, Build Em Up Bookkeeping has the experience to serve all your tax needs. Contact Build Em Up Bookkeeping in Riverton today and experience the convenience and peace of mind that comes with having your taxes handled by a professional. Call 307-207-2772 or visit their website here to learn more and schedule your free consultation.