Tax season has finally ended! Now it is time to sit back, relax, and forget that the IRS exists for the remainder of the year, right? Not quite. I am asking you, as a friend, to do a couple things before you close the book on your 2017 taxes.
Why would I ask you to do such a terrible chore? Because it is much easier to start tax saving strategies in April than waiting until December to see what you can do before the end of the year. It’s also a better strategy than waiting until you are preparing your return next year and realizing you could have made some minor changes during the year to save on taxes. Spend about an hour of your life and go over the following items before you forget everything about 2017.
Review your return – Just go through each page on your tax return and make sure everything looks correct. Most tax preparation software doesn’t allow you to view the return until you finish and pay. Most people prepare returns in their software and just hope the result is a big green number on the screen. It is important to make sure that you didn’t mistype anything or forget to include some deductions. You can also compare it to your prior year return if you have that on hand. If you notice a mistake, you can always amend the return to correct it.
Check your payroll withholdings – Are you getting a very large refund, or do you always seem to owe money? Find a recent paystub and see how much is being withheld on your paycheck. Focus on the FIT (Federal Income Tax) amount and the state income tax as well. The ideal situation would be that you pay in enough so that you owe nothing at the end of the year. Some people prefer to withhold extra to act as a savings account. I understand that concept, but there are better ways to save money from each paycheck.
Consider Retirement Options – This category can get confusing very quickly so keep it simple for now. If you have a retirement plan at work, how much could you save on taxes if you increased your contribution? If you don’t have a plan through your company, have you considered an IRA? Do you own a small business? Small business retirement plans can help you save a significant amount on taxes. Roth accounts are important to consider as well. They may not save money on taxes now, but you won’t pay taxes on these accounts in the future if you follow the rules for distributions. The important thing in this section is to know how much you put towards retirement and how it impacts your tax return.
2018 Changes – This year is an important year for understanding your taxes because the withholding amounts changed. You may have noticed your paycheck increase because of the new tax law. Make sure that your payroll withholding is still in line with your estimated taxes for 2018. You can work with a tax professional or find an online calculator to estimate this. This is important so that you can avoid any surprises next April.
You don’t need to be a tax expert to do these things. They will help you understand your tax situation and allow you to plan better for the future. Don’t put it off until December and start worrying about how to save on taxes before the year ends. Get a plan together that fits your lifestyle and can help reduce the tax burden that you incur each year. I promise that you will thank yourself for doing it!
Mike Zeiter, CPA/PFS