smart taxpayers plan their tax year. They do not wait until the year is over, and then prepare their taxes and see how much damage has been done.
The further away before you look to plan your tax situation, the better your chances significantly reduce your tax. load - and better planning for your financial future
Follow these tips to tax planning of next year, before it's too late
First, run "what-if" scenarios for the new fiscal year
. You can use the tax calculator to perform "what-if" scenarios for current and future tax years. This gives you a starting point for your tax planning.
For example, prepare a hypothetical scenario for the new year with no major changes, or the most likely scenario. If your income is variable, you can also try the high and low scenarios and see how they affect your bottom line tax.
Decide whether bunching deductible expenses can help.
For certain items, you can take a deduction to the extent that they exceed a certain amount in a tax year.
If you extend payments for a major expense for two years or more, you may get little or no tax benefit.
you can make that tax planners call bundling and pay more than one type of deductible expense in a year.
Here's how bunching works.
Say you have a couple of kids who need braces. The orthodontist allows you to pay all at once, or payments over three years. You can only deduct medical expenses after they exceed 10% of your adjusted gross income (AGI) (7.5% if you or your spouse is over 65).
If you extend orthodontic payments, you can never reach the minimum of 10% (or 7.5%) or get a deduction.
However, pushing spending for braces in a year, you could have 10% (or 7.5%) of your AGI expensed in one year - .. and you may well get the uncle Sam to help pay these beautiful straight teeth
Try to match the main deductions for years in high-income
you can not decide yet when to deductible expenses - but sometimes you can
for example, say you need to buy expensive equipment for your small business .. you can buy it in December or January, and assume you deduct the full cost of a year.
The first impulse may be to purchase the equipment in December to take the deduction for the current year.
However, if the income of this year was on the thin side, and you expect to be in a higher tax bracket next year, consider putting your purchase until January. You can get a significantly greater advantage of the deduction.
Know the rules for claiming a dependent.
Claiming a dependent on your tax return can make a huge difference to your taxes.
The IRS allows you to take a $ 4,000 exemption for each dependent. In addition, you can claim certain expenses for dependents, such as child care expenses, medical expenses and tuition payments.
Clearly your children who live with you all year long are your responsibility.
However, the rules can be a bit complex if you share custody of a child with someone, help support an elderly parent or a relative lives or not relative with you.
Sometimes, how the planning you spend in a year or how many days dependents living with you can make a significant difference in the tax benefit you receive.
Estimate your tax implications before you sell major assets.
Some of the best opportunities to save taxes come when you expect to sell an asset.
For example, say you're thinking of selling the house you lived in 18 months. Its value has increased over the years, and if you live and are the owner of the house only six more months - until the two-year mark - you may qualify to exclude the entire gain from your income taxable. (If you meet certain exceptions, such as a job transfer, you may be able to exclude the gain even if you do not live in the house for two full years.)
For stocks and other assets that have increased in value, remember to keep more than a year.
After the one-year mark, you'll pay capital gains much lower tax rate.
Contribute to your retirement accounts throughout the year.
of course you can bring your IRA contribution next April, just before you file your taxes. But you will have the money set aside then?
It is much easier to contribute earlier in the year or put money aside each paycheck.
In addition, the earlier you put your money in a retirement account, the longest compound returns must work their magic before retiring.
Contribution in each tax year, instead of later, is easier and helps you more effectively achieve your financial goals.
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