Filing and paying your taxes may not be your favorite activity, but having an effective tax strategy in place can help you avoid the stress of tax season when it finally rolls around.
If you’re financially savvy, creating a solid tax plan for the entire year can help you minimize your taxes in the long run. But if you want to optimize your savings even more by the end of the year, know that it’s possible by doing a few of the steps below.
This blog post is just a summary of the things you need to consider to ensure that you have as much money as possible left in your pocket at the end of this financial year.
Top Year-End Tax Planning Strategies To Keep You Ahead
Before you get swept up by the start of a new year, consider giving your finances a last check to set you up for this tax season.
To keep your taxes to a minimum, here are a few things you can catch up on doing before this financial year comes to an end:
Assess your financial health
Whether it’s your personal or business account, knowing where you are in terms of your finances is essential since this will help you pinpoint which aspects you should improve on and which strategy is helping you progress.
If you have a business, you can check its statements to see if your company had more significant gains or losses this year so you can determine the root causes and help you avoid making the same mistakes next year.
The same goes for your personal finances, where you could evaluate your net worth and debt-to-income ratio to help you decide which next step to take.
Maximize your contributions
If you have a retirement plan set up by your employer, the contributions are typically taken off of your paycheck. But if you want to optimize your tax break, you can try contributing the maximum amount for the year – make sure to check the limit, whether it’s for a 401(k) or traditional IRA.
If you have kids, also consider investing in a 529 plan to help you cover their tuition fees for college and other educational expenses. Your funds will grow tax-deferred and can be withdrawn tax-free when it’s time to pay for qualified expenses.
Depending on where you live, some states also offer a state income tax deduction or tax credits that will lower your taxes in the long run.
Update your withholdings
If you’ve gone through some significant life changes this year, remember to update your tax withholdings from your employer. Changes, like giving birth or adopting a child, and being unemployed for some parts of the year, will lower your withholdings. Conversely, taking on a second job or getting a raise may increase your withholding if it moves your status into a higher financial bracket.
If you need more clarification, the Internal Revenue Service (IRS) has a tax withholding estimator tool to let you know if you need to update your withholdings. If it needs changing, you can fill out the new amount on Form W-4 and submit it to your employer.
Invest in business supplies and equipment
If you own a small business, consider buying the supplies and equipment you’ve been eyeing by the end of the year. Aside from entering the new year with upgraded machinery, timing your major purchases can qualify you for a deduction on your taxable income.
Just make sure the equipment you’re planning on getting will make sense for the improvement of the profitability of your business so the cost won’t feel like a loss.
If you’re thinking of expanding your business, this will also be a great time to buy new property since Section 179 allows business owners to deduct all or a part of the expense as long as it’s put into service.
Consider donating to charities.
If you have extra funds, why not donate a portion to a charity you advocate for? Aside from using your money for good, the amount you give will also be considered a deduction in your taxes.
But a gift donation doesn’t always have to be in the form of money since clothing, food, or toys can also be helpful to many. Remember to keep receipts or other documentation as proof when you’re filing your tax return.
Need Help With Your Year-End Tax Savings Strategy?
If you need help with coming up with an excellent year-end tax savings strategy, you can always turn to Lear & Pannepacker for assistance.
They have a reliable team of accountants that are ready to aid you in creating a customized and proactive plan for keeping your taxes at a minimum. You can contact them now to book your first consultation if you want to know more about their services.
Key takeaways:
- Tax planning is important for professional accountants and those who want to keep their taxes at a minimum.
- Having an effective tax strategy in place can help you avoid the stress of tax season.
- If you want to optimize your savings even more by the end of the year, know that it’s possible by doing a few of the steps described above.
- You can also check if you have any tax advantages to consider. Contact Lear & Pannepacker for professional assistance.
- Check your updates on tax withholdings.
- Donating to a charity may also provide you with good deductions.