We know nobody really likes tax season. However, the work you do now could be the difference between saving money or spending money in March and April. It helps to have a good accountant, but if you wait until the last minute, a tax accountant can only fill out your tax filings according to what’s already happened.
Contrary to what you may have heard, there is no magic wand that an accountant can wave to give you a better tax outlook. Here are a couple easy ways that you can plan ahead so that you’re tax planning and not tax reacting. Don’t be scared, but don’t wait either -- the time you take now will save you time and money later.
Use your bonus money for a 401(k) contribution.
Many employees receive a bonus at the end of the year. While it can be fun to treat yourself to something nice, it’s way more advantageous in the short and long-term to use it to make the maximum allowed 401(k) contribution. It can save you a ton of money on taxable income by lessening your total adjustable gross income.
Having a hard time visualizing this? Here’s a great example that shows how investing the majority of a bonus on saves approximately $7,000 on income tax. That’s nothing to sneeze at. So skip the new jet ski this year and take control of the taxes you pay during the year.
Getting SALTy -- Up to 10K in state and local taxes are still deductible.
There are a ton of IRS tax deductions that aren’t around any more, thanks to the tax reform process that happened this year. Luckily, the ability to deduct for state and local taxes (which includes property tax deduction) survived the mass culling. You can still use the SALT deduction (state and local tax) for up to 10k. The annual cap is new, but considering that there was a lot of talk of getting rid of the SALT deduction completely, this is good news... if you plan ahead.
Get creative with your accountant.
One good thing about the Tax Cuts and Jobs Act is that it doubled the standard deduction for single filers (up to 12k). That can be advantageous, but it also means that it’s really leveled out a lot of the previous deductions that were available. It’s important to get together with your accountant early and often to plan how you can use your deductions and where there’s still a little wiggle room. Don’t just hand them a bunch of documents at the end of March and expect a miracle. Being proactive with your finances will reap big rewards.
So what are you waiting for? Let’s make 2018 the year that we do our taxes right. Be a tax superhero this year. With a little planning, some knowledge, and a good accountant, anything is possible. Just don’t wear any superhero costumes to your meetings, unless you really, really want to.