For Mark Roberts’ Use: Who thinks about their federal income taxes during the summer? Probably not many people, but that would be a mistake. Planning for taxes throughout the year is one of the best ways to make filing your taxes easier and faster next spring. It can also save you some money.
In particular, planning for deductions and credits throughout the year can help you lower your overall income tax burden. If you wait until next spring, you might get in a rush and forget something. Plus, in order to claim certain deductions, you must hold onto proof of the expense.
So, rather than playing hide-and-seek with your receipts next April, create a simple filing system now. Hold onto proof of expenses such as:
- state and local sales taxes paid on large purchases
- unreimbursed medical and dental expenses
- Contributions to charities (only those approved by the IRS are eligible)
- moving expenses to take a new job
- tax preparation services
- health insurance premiums
- mortgage interest
- points paid on your mortgage
- dependent care expenses
- contributions to your traditional IRA
- payment of student loan interest
- investment expenses
- union dues
- other expenses associated with work
- home office expenses
Some of these deductions might be available to you, while others are not, because many of them depend upon income. However, it’s a good idea to hold onto records of all of these expenses, because income does sometimes shift mid-year, and Congress sometimes passes new tax rules that go into effect the following year. In other words, if there is even the possibility of using something as a tax write-off, hold onto proof of it.
Another thing to track is the timing of certain payments. For example, if you’ve hit your annual limit for medical expense deductions, you might prefer to wait until January 1 to pay your dentist for work performed in December. That way you can put that bill toward your deduction for the following year.
As always, consult with a tax professional before making any assumptions about deductions or credits. And remember to stay in touch with us; we can help you learn how retirement plan contributions and other financial planning issues can affect your tax situation.