Tax season may not officially start until after the new year, when we all begin to scramble to submit our tax returns. But taking a look at your tax situation now can ensure that you don’t miss out on any opportunities before the end of the year. Here are five things you can do before the end of the year to make April 15 a little more tolerable.
1. Make an Appointment with Your Tax Preparer Now
Given that each person’s tax situation is different, sitting down with your accountant is crucial — preferably as early as possible. Your accountant is the best person to help you decide which moves are going to help you reduce your overall taxes, as well as how to take full advantage of tax credits, tax-advantaged savings accounts and all the other options out there.
2. Estimate Your Tax Bill and What You’ve Already Paid Into the System
Mariette Knoblauch, a Seattle CPA who specializes in taxes, notes that not everyone is paying enough into the system, either through payroll taxes or quarterly estimated payments. Particularly for the self-employed, Knoblauch recommends estimating your tax bill and making sure that you have enough money to cover any shortfall. She says, “For Schedule C sole proprietors, the minimum tax rate is about 30 percent if you count self-employment taxes. That’s a big chunk of change.”
3. Decide Whether You Need to Adjust Your Income or Your Deductions
Depending on what taxes you expect to owe next April, you may be able to improve the situation with some adjustments. Tax professional William Perez notes that if you expect to be in a higher or lower tax bracket next year, you may want to consider adjusting when you will receive part of your income or when you claim your deductions, to reduce your tax burden. Your options can include asking your employers to pay out bonuses after the first of next year, waiting to sell investments or changing when you might usually pay deductible bills or make donations. A tax professional can help you run the numbers on these different options.
4. Increase Your Retirement Savings
Particularly if you’re facing a big tax bill, Knoblauch recommends looking at your retirement accounts. She says, “Retirement contributions, like to an IRA, can help. Someone who is self-employed can contribute about 20 to 25 percent of their profits to a SEP IRA account pre-tax.” There are similar options for employees, both for accounts that an employer may help set up, like a 401(k), and for those that aren’t dependent on employers, like a Traditional IRA. There are also tax-advantaged savings accounts for other purposes, such as saving for college.
5. Check Your Home for Deduction Opportunities
While buying a new home may have the largest overall impact on your taxes, making improvements to your property can also qualify you for a variety of deductions and credits. Make sure to check out your options for both your federal and state taxes—particularly if you’re making your house more energy efficient. You may qualify for multiple opportunities to save on your taxes. Household expenses may be able to help in other ways, as well. Since you can write off mortgage interest, real estate taxes and other specific expenses, making a few payments in advance could help you on this year’s taxes.
