Is Tax Strategy Included in Your Financial Goals?
Without fail, each new year brings heartfelt resolutions for improvement. Did you promise to live healthier this year? Did you vow to spend more quality time with your loved ones? If you were like most people I know, you probably made getting your finances together your mission for 2014. This is a great mission to have. Life is so much easier with an organized, functioning, profitable financial life, right?
Most financial improvement strategies involve paying off debt, increasing savings, and increasing income. These strategies should be implemented for financial success. Yet, a commonly overlooked area is decreasing tax liability (or the amount you are required to pay in taxes). Though everyone who earns an income is not required to file federal and/or state taxes, if your income does oblige you to file, please understand that you do have the power and ability to minimize how much of your income goes to the IRS! Lower taxes mean more available income for you to achieve your financial goals. Below, I share tips you can incorporate today to begin lowering your tax liability for next year and help you achieve your 2014 financial goals.
Tip #1: Review Your Current Paycheck Withholding
If you plan to get a huge refund at the end of the year, your paycheck withholding probably needs to be adjusted. Why wait until the end of the year to receive money you can put to use today? In 2012, the average U.S. tax refund was $2,803. This equates to $233/month given to the IRS to hold and refund back at the next tax year. I believe an extra $233/month could definitely help you achieve your financial goals faster. Furthermore, if you owe taxes at the end of the year, you should increase your paycheck withholding to eliminate having too little taxes taken out. This will help you avoid paying a huge tax bill, all at once at the end of the year. Checking your withholding is very easy. Visit the IRS website where there’s a free Withholding Calculator to help you determine what adjustments to maximize your tax strategy.
Tip #2: Plan your deductions in advance
There are several tax liability reduction tools available to help lower your tax bill each year. Below are 3 tools you can begin thinking about today.
1. Donate to a qualified non-profit organization or charity! In most cases, taxpayers can deduct any cash contribution or the fair-market- value of any donated items. This includes cash contributions to your local faith-based organizations. Remember to get a receipt of value for items donated or cash contributed.
2. See the doctor and the dentist! Expenses paid for medical and dental care for yourself, your spouse, and/or dependents are deductible if they exceed 10% of your adjusted gross income for the tax year that the expenses were paid.
3. Make your student loan payment! The interest portion of your student loan payment is deductible for the year the payment was made, not the year the loan was incurred. This deduction is available for payments you made for student loans for yourself, your spouse, and/or your dependent and reduces your taxable income by up to $2,500.
Minimizing taxes is an often neglected part of financial success strategies. However, it is an area you can regulate and be in control of your finances. True, it is best not to cross Uncle Sam, but your money and your financial success belong to YOU!
That’s our Q to your A! Tell us what you think in the comments below.
Let’s talk about tax!
How could using a better tax strategy help you?
Do you actually consider taxes in your financial plans?