by Taylor J Kovar
Hey Taylor – I filed my taxes last month and like every year, I didn’t do enough prep work and I think I paid more than I probably should have. I want to do better next year so I’m asking way in advance – what are some things I should be on the lookout for? – Blair
Hey Blair – You’re doing the right thing in looking ahead to next year. Taking care of taxes at the last minute never works as well as preparing ahead of time.
According to Dave Burton, with a good strategy you can lower what you’ll pay when you file while also reducing the taxes taken from each paycheck. If you make a focused effort now, you’ll definitely see the benefits at the beginning of 2019.
- Increase your retirement investment. Whether you have a 401(k) or an IRA, putting more money into that account can help with your tax situation.
Without earning less, you’ll reduce your taxable income and save money over the course of the year. You’ll also put more into your retirement account, which is always a fun thing to do.
- Donate things you don’t need. Lots of the stuff in your basement or attic won’t sell at a garage sale. However, those same items can be given to charitable organizations and secondhand stores in exchange for a receipt that you can use when it comes time to file your taxes. If you own a business and have desks or computers you no longer need, you might be able to make a sizeable donation.
People often overlook this option, thinking the work isn’t worth the reward; if you find enough stuff to give away, it’s not too hard to save yourself a few hundred dollars when the IRS comes to collect.
- Adjust your W-4. If you’re content with your paycheck all year round and then end up owing too much when it comes time to file, a simple adjustment might make all the difference. Having your employer withhold more during the course of the year means you get more back when you complete your tax return.
Meanwhile, if you get a big return each April but have trouble covering your bills during the other 11 months, you might want to reduce the withholding and keep a little more of those wages. This is the simplest option for changing your tax situation, and yet it’s one of the most commonly overlooked.
In addition to these points, make sure you diligently track the rest of your spending throughout the year. Keep a mileage log, research the business write-offs frequently used by people in your field, keep record of your expenses, and make sure you keep receipts for all the big purchases you make throughout the year. The more detailed your recording, the more money you can keep in your pocket.
Good luck, Blair!
Disclosure: Information presented is for educational purposes only and is not an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
To submit a question to be answered in this column, please send it via email to Question@TaylorKovar.com, or via regular mail to Lessons on Wealth, 106 E Lufkin Ave., Lufkin, TX 75901.
