Tax season is upon us, and while we might dread this time of year, taxes are a necessary evil that we must face. If you are like one-third of Americans, you wait until the last minute to file your taxes. Unfortunately, procrastinating won’t do anything except increase your blood pressure, so don’t wait until mid-April to get organized. If you want to avoid the headaches that coincide with filing your taxes, follow these three tips to help you prepare for tax season:
1. Take Advantage of Deductions and Credits
Benjamin Franklin may have declared that “nothing is certain except death and taxes,” but that doesn’t mean you can’t do your best to minimize your tax bill. Fortunately, there are multiple credits and deductions that will not only benefit you this tax season but also give your financial future a boost.
Maximizing your retirement savings is an optimal way to also save on your taxes. If your employer offers a 401(k), you can contribute up to $18,500 in 2018. If you are over 50, you can also take advantage of catch-up contributions of an additional $6,000. If you don’t have the opportunity to save through an employer-sponsored plan, you can still invest in an IRA. IRA contribution limits for 2018 are $5,500 per person, with an additional $1,000 for those over 50.
Contributions to HSAs (health savings accounts) are also an excellent vehicle for reducing your total taxable income. The 2018 contribution limits for HSAs are $3,450 for an individual or $6,900 for a family. You can also make a $1,000 catch-up contribution if you are over 55. For the 2017 tax year, you have until April 17th to contribute to HSAs and retirement funds to benefit from this deduction.
Some additional deductions that may apply to you are state sales tax on major purchases, student loan interest, and medical and dental expenses.
Filing taxes can be painful, but depending on your situation, you may be able to benefit from a variety of credits. You just have to know where to look. Many Americans qualify for the Earned Income Tax Credit, and if you or your children attend post-secondary education, you could benefit from the American Opportunity Credit and the Lifetime Learning Credit. There are also credits for saving for retirement and child and dependent care. A qualified CPA will know what questions to ask and what to look for so you don’t miss out on any opportunities to reduce your tax bill.
2. Organize Your Paperwork
This is a crucial step to ensure a smooth filing experience. Gather records and account for all income, most commonly in the form of a W-2 or a 1099. Your employer is responsible for getting these documents to you by January 31st, so you will have plenty of time to organize your documents before the filing deadline. In addition, here are some additional documents you may need to file your taxes this year:
- Records of charitable contributions over $250
- Information from prior years’ tax returns
- Rental income
- Mortgage interest and property taxes paid
- Dividend income
3. Work With a CPA
Did you know that over one million accountants are hired each year in America to help with taxes? There’s a reason for that. Working with a qualified and experienced accountant can make your tax season experience as seamless and stress-free as possible. They have the knowledge to help you claim all the deductions you deserve, account for many variables unique to your situation, and answer any and all questions you may have. Their expertise can save you money and give you peace of mind.
Not only that, but a CPA will also give you suggestions that will help you reduce your taxes for years to come, such as offering advice on tax-friendly ways to set up your estate and showing you the benefits of maximizing your retirement savings. Many CPAs will also work with other members of your financial support team, collaborating with your advisor or attorney to cover every aspect of your finances. Regardless of what your financial situation looks like, you can’t put a price on the value a CPA provides.
Tax day is looming nearer, but don’t let that stress you out. Between now and April 18th, take these steps to get ready for tax season so you aren’t scrambling at the last minute. If you have any questions about other ways to set yourself up for financial success or would like information on how to find the right CPA for you, contact my office at 770.249.7424 or email me at email@example.com.