We all like the idea of saving money come tax time, but tax tips seem to only come at the end of the year, when everyone is scrambling to get a few more tax deductions before the year ends.
We’re going to change it up and provide five tips you can do right now that should make life easier come tax time.
While you don’t want to do anything illegal to avoid paying taxes, there is also no reason to pay more than you owe. With a little planning and TurboTax help, it’s possible to save money on your taxes.
1. Plan Ahead
One of the best things you can do when it comes to tax planning is to look ahead. What expenses will you have for the year? What items can result in tax credits and deductions?
By looking ahead, you can get a solid idea of what you are eligible for and then plan your expenditures accordingly. It makes sense to be prepared rather than try desperately to find last-minute tax savings.
Are there charities you want to support but don’t have the cash on hand? Start saving today with the goal of making the contribution in December. You can take a tax deduction for charitable contributions to an IRS-recognized nonprofit organization if you can itemize your tax deductions, even if you make your donation on December 31!
Are you self-employed and thinking about purchasing that office equipment you’ve been procrastinating purchasing? Start saving now! You can also purchase that equipment on December 31 and still take a business expense deduction on your taxes.
What about making an extra mortgage payment (paying the January bill in December, thus taking the interest deduction this year)? These are all things that cost money, and instead of throwing it on a credit card, it’s great to make a plan and begin saving as soon as possible.
2. Should You Be Itemizing Your Tax Deductions
For many taxpayers, itemizing tax deductions can be a way to reduce taxable income.
Itemization works when you have a number of tax deductions that qualify as itemized deductions that add up to more than the standard deduction ($12,950 single for tax year 2022, $13,850 tax year 2023, $19,400 head of household tax year 2022, $20,800 tax year 2023, $25,900 married filing jointly tax year 2022, $27,700 tax year 2023) that all taxpayers get.
Some eligible tax deductions include charitable contributions, mortgage interest, property taxes and a portion of medical expenses over a certain amount of your income.
TurboTax will help you decide which is more beneficial for you (the standard deduction or itemized deductions) based on your entries, but it’s helpful to start thinking about the tax deductions you may have now.
Start accumulating those receipts and amounts today so that you can save more money and have your information ready to go when you file your taxes.
3. Keep Good Records
When it comes to taxes, it helps to have your records all in one place so you don’t miss any tax deductions or credits. By keeping good records now, even if you haven’t in the past, you can save time at tax time.
You also should keep information about any tax deductions and credits you claim at tax time.
4. Strategically Sell Your Investments
If you have investments that you want to sell, make sure you go about it in a strategic manner. When you sell an investment for a gain, remember you can reduce the amount that you have to pay in capital gains taxes by offsetting your gains with capital losses. If you have some losing investments that you want to get rid of, you can sell them and deduct the losses. You can use our Capital Gains Tax Calculator to estimate your capital gains/losses, capital gains tax, and compare short-term vs. long-term capital gain if you’ve already sold or are considering selling.
Finally, consider donating appreciated stock instead of cashing it out if your financial situation permits. When you donate appreciated stock directly to an IRS recognized 501(c)(3) charitable organization, you can take a deduction for the fair market value of the donated stock and avoid the capital gains tax you would have paid if you would have sold the stock and then donated the proceeds if you can itemize your tax deductions.
5. Be Aware of Tax Benefits for Your Kids
If you took your kids to summer camp or even sports camp so you could work, all is not lost. Camps are expensive, but you can take the Child and Dependent Care Credit worth up to $1,050 for one child and worth up to $2,100 for two or more children under 13 and no age limit if they are disabled. There are also other tax benefits when you have dependent kids, like the Earned Income Tax Credit worth up to $6,935 in 2022 ($7,430 in 2023) for three or more kids.
As part of the American Rescue Plan, for 2021 only (the taxes you likely filed in 2022) the Child Tax Credit was worth up to $3,600 for each qualifying child under 6 and up to $3,000 for each qualifying child age 6 to 17. However, in 2022 (the taxes you likely filed in 2023), the Child Tax Credit returned to its previous limits of up to $2,000 for children under age 17 at the end of the year. The credit amounts begin to phase out when your modified adjusted gross income (MAGI) exceeds $200,000 ($400,000 for those married filing jointly).
TurboTax Has You Covered
Don’t worry about knowing these tax rules. Meet with a TurboTax Full Service Expert who can prepare, sign and file your taxes, so you can be 100% confident your taxes are done right. Start TurboTax Live Full Service today, in English or Spanish, and get your taxes done and off your mind.
What is FAFSA & How to Apply? (FAFSA Help Guide)
One response to “5 End of Summer Planning Tips to Help You Save at Tax Time”