With another stressful tax filing deadline in the rear-view mirror, many will sit back and not think or worry about their taxes until next year. This usually results in last minute scrambling and unneeded stress. Right now is actually a great time to get organized and pinpoint the strengths and weakness of your finances. What could you have done better in planning for 2015 taxes? What types of strategies can you utilize this year that you may not have taken advantage of last year?
Here are a few tips to be proactive in your tax planning for 2016:
Estimated Tax Payments
To avoid a big tax bill next Spring make sure to pay your way throughout the year. Although we are past the deadline for the first quarterly payment which was April 18, 2016, it would be wise to schedule the remaining three deadlines which fall on June 15th, September 15th, and January 17th 2017.
The 2016 annual limit for deductible IRA contributions depending on income is $5,500 plus an additional $1,000 catch-up for folks who are 50 or older. Instead of writing that check next April to lower your taxable income, why not smooth it out over the course of the year? This will not only help you plan for next year but can help with cash flow planning.
Employer Sponsored Retirement Plans
Are you maxing out your 401(k), 403(b), 457, or any other retirement plan? If not, this is a great way to increase savings, reduce taxable income, and take advantage of employer matching. Do you know the percentage your employer matches? There could be savings left on the table by not taking advantage of an employer match.
Tax Loss Harvesting
The prices of your investments will fluctuate throughout the year; sometimes their value will be less than what you originally paid. Try selling those positions at the lower price, book the loss, and then buy back again in 30 days. Throughout the year, tax-loss harvesting is a great way to capture losses that can be used to offset future capital gains and/or up to $3,000 of income.
Home ownership, paying medical expenses and making charitable donations could mean more tax savings. Remember to keep accurate records of all charitable donations and various expenses throughout the year so that you are organized and prepared come tax time.
Tax season can be less painful if you are a little more proactive in the upfront planning.
Here’s an article we came across with some interesting facts and insights from this past tax season. Tax Day 2016 By The Numbers