If you’re lucky, you don’t have to think about your taxes more than a couple times each year. Now is one of those times. By sitting down and going over last year’s taxes, this year’s taxes and your plans for that refund, you shouldn’t have to revisit your tax plans until next year.
Below are 11 tax tips for saving on last year’s taxes, planning this year’s taxes and putting your refund to good use.
Saving on Last Year’s Taxes
1. Should you do your own taxes?
Good question. It depends on the complexity of your financial situation, tax liability and whatever else you might be mixed up in. Business Insider created a flow chart if you’d like someone to tell you what to do.
2. Itemized vs. Standard Deduction
Will you be taking the standard deduction or is itemizing everything better for your bottom line? For those taking the standard deduction, you are limited to certain deductions, while itemizing provides the opportunity to write off a lot more expenses. It may depend on if you have the paperwork to itemize. If you’re in the 15 percent tax bracket, every $1,000 you itemize can save you $150 on your tax bill. Some more pros and cons for each can be found here.
3. Investments you can still make to affect last year’s income
You can contribute to an IRA until the tax deadline this year and still claim that contribution as a deduction on last year’s taxes. If it makes sense for you, there’s still time.
Preparing for Next Year’s Filing
4. Adjust Your Withholdings
Did you owe some money this time around? Adjust your withholdings with your employer to ensure you are getting the right amount of money in your hands. The question of whether you want as small a refund as possible or if you put a large refund to good use, is more of a personality question. Putting more money in your hands on a monthly basis is a good thing, but if you’re going to waste it, then maybe the larger refund you put directly into savings or debt would help. It is quite the dilemma, for help in solving it, read a little more on your options, here.
5. Plan for life changes – children, mortgage, school, losing dependents
What might be happening this year? Take a second to plan out any big changes that will affect your deductions or credits. New children will add to your deductions, along with mortgage interest or points. Tuition and student loan interest payments also add to the deductions you may be able to take advantage of.
If you’re losing your dependents or are stopping something that lowers your income, plan for the extra tax you’ll be responsible for, all things being equal.
6. Maximize your tax-deferred accounts (IRA, 401k, HSA)
If you’re needing to put money aside for retirement or medical expenses, set up tax-deferred accounts so you’re not being taxed on money you’re saving. Talk with your employer about having this money taken out before taxes. It will save you money in the long run and reduce your tax bill this year.
7. Charitable contributions
Want to give? It can also help on your taxes. Figuring out how much to donate to help on your taxes might be more of a question for a CPA or tax specialist, but you can find a charity you trust and give them some help for a little personal tax relief come next year’s filing.
Putting Your Refund To Good Use
If you have already answered the refund dilemma, then let’s see how you can use that leftover money from your taxes to the best of its ability.
8. Put it towards your debt
Trying to become debt free? Put that refund to use on your highest interest rate debt or pay off your smallest balance so you can put more money into your other debts. Extra debt payments can help save money on interest by getting out of debt quicker.
9. Stash it away in savings/emergency fund
Have an emergency fund of at least $1,000? Well, you do now. Put that refund into your emergency fund or saving a month’s worth of income so you’re prepared for the worst.
10. Towards retirement
If you’re young, putting as much money in retirement accounts now will earn you much more thanks to compound interest. Cushion those retirement savings so you can live comfortably down the road.
11. Renovations, repairs, vacation. Anything you didn’t have the money for, but do now
Have something you wanted to get done, but didn’t have the money for it? Put that refund to good use instead of using credit to cover the expense. Not going into debt for something saves on interest, so if you won’t be putting that money away to earn interest, no new debt is the next best thing.
If you have any questions or need a little more expertise than what’s readily available, contact a tax specialist or accountant. You’re always better safe than sorry. If you’re wanting to start paying off your debt and prioritizing your finances try a free debt analysis to see how much you can save in interest payments and time.
If you’d like a better financial plan to help guide you through your daily financial decisions, monthly discussions about money or even bigger picture long-term preparation, Mvelopes’ personal finance trainers can help you get on the right path and stay there. Sign up today for a regular session with one of our personal finance trainers or put together a financial plan in 10 short weeks with our Budget Makeover.