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How to Leverage Tax Savings-Plan Ahead

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How to Leverage Tax Savings-Plan Ahead

If you are concerned about how much taxes you may have to pay next year based on the previous year’s tax bill, the good news is that there is something you can do about those concerns. In order to take advantage of those opportunities; however, you are going to need to start planning early. In fact, you need to start planning as soon as the clock strikes midnight on New Year’s Eve.

One strategy that can be utilized is to make sure you are contributing to a retirement plan. While we all talk about the importance of contributing to a retirement plan for our golden years, the truth is that making contributions now can even help you before you reach retirement. Contributing to a 401(k) or some other type of retirement plan is a great way to take advantage of some wonderful tax savings. These contributions are not subject to most state income taxes or federal taxes. This means that your contributions, and those matched by your employer, will grow until you draw them during retirement without being taxed now. Even if your employer does not offer a retirement plan, that doesn’t mean you can’t take advantage of this opportunity. Look into contributing to an IRA to take advantage of these tax savings.

Making contributions to a flexible savings account or health savings account is also another way to leverage your tax savings. When you make a contribution, the amount will be deducted from your paycheck before taxes are calculated. The amount is then placed in an account to be repaid to you when you provide documentation for expenses that were not covered by insurance. This includes such items as co-pays and premiums.

It’s also a good idea to make sure you are planning and documenting those charitable contributions you make over the course of the year. While you can certainly itemize these deductions on your income tax return, there is also tremendous opportunity to save even more by simply planning a bit better. For example, instead of having a garage sale, save yourself the trouble and some tax money by simply dropping the items off at a charitable organization such as Salvation Army, Goodwill, etc. By keeping up with a list of the items and a fair market value for each item donated (the price you would have slapped on it if you’d had a yard sale) you may be able to take the deductions. Get a receipt when you drop them off and that is one more way to leverage tax savings.

Finally, don’t forget do some planning when it comes to renovations around your home or even the purchase of a new car. For example, if you purchase a hybrid car you could stand to bring home a tax credit of up to $2,600 in addition to a new ride. Making energy saving renovations around your home such as installing storm windows and doors could also add up to tax savings as well. Be sure to save your receipts and speak to your accountant for more details on how these actions throughout the year can help to reduce your total tax bill.

Taking the time to plan throughout the year can add up to some tax savings. Don’t let possible savings get away from you for lack of planning.

The purpose of this article is to provide general information on tax matters. It suggests general tax tips that may be appropriate in certain situations. The information and opinions are generalizations and may not apply to all taxpayers. It is important that you seek appropriate professional advice before implementing any of the tax ideas suggested.