Wouldn't be great if there was one simple tax-saving formula to apply every April? Income minus deductions and you're done. Just like that. Unfortunately (and fortunately for free enterprise), every income situation is unique and therefore requires close attention to detail when determining where and when you can save. However it is not rocket science. By applying a few rules of thumb and a little common sense you may be able to cut your tax bill considerably.
Here are a few tips that can help:
Check with your employer to see if any end-of-the-year bonuses can be paid to you in January. If so, this will lower the amount of income you have to pay taxes on for the present tax year. Also if you do any consulting or freelance work, you may want to delay sending any large invoices until after New Years.
Take Last-Minute Deductions
Contributing to a charity before the end of the year can be a noble way to help lower your taxable income as well. You may want to estimate how much you owe to Uncle Sam and go from there when deciding how much you want to contribute. Before you begin, be sure to gather your account statements for the tax year.
Contribute the Maximum to Retirement Accounts
No doubt tax-deferred retirement accounts are smart investments. They are allowed to grow into hefty sums because they are compound over time free of the burden of taxes. Employer 401(k) programs and IRA accounts are excellent options for long-term saving. Consider bumping up your 401(k) contributions to the maximum amount. You'd be surprised at what your adjusted take home pay may work out to be. The more you contribute the less taxable income you have which can save you even more in the long run.
You may also want check with your tax advisor to find out how much you or your spouse can or should contribute to an IRA even if you already feed a 401(k) program.
Update Flexible Spending Accounts
Some employers offer flexible spending accounts that deduct money pretax from your paycheck and fills an account to cover dependent care expenses and healthcare expenses not covered by insurance. You can usually contribute up to $3,000 annually for healthcare and $5,000 for childcare. The tax exemption here can save you up to 40% or more. However, you must figure carefully. Any amount left in the account at the end of the year is forfeited. So be precise.
Taxes are one of the life's certainties. So it is important to plan smart and make the most of any exemptions or deductions made available to you. But it can become confusing and seem overwhelming at times with ever-changing tax laws and strict regulations. As always, we want to help you make the right moves in your financial planning. To find out how you can save on your taxes with Regions financial tools like IRA programs, don't hesitate to ask.