The dreaded deadline is upon us at least — Tax Day is April 18. Time to file for 2016 or, at the very least, pay your taxes and ask for an extension to file.
It’s likely that your 2016 filing is in order and ready to sign. You might have a few days to find an extra deduction or a stray credit, but time is running out.
So what can you do, right now, to make 2017 go more smoothly and, perhaps, save a bit more of your hard-earned money? Here are three ideas:
Put more into your 401(k), IRA or both
Most deductions are not the tremendous windfalls we think them to be. Often, there are limits depending on your income, and many depend on specific circumstances that affect only some people.
Same with tax credits. You qualify or you don’t, and Congress can end them at any time.
But everyone who earns a paycheck can lower their taxes dollar for dollar by putting money aside in a 401(k) or IRA. That’s better than a deduction and more predictable than a tax credit.
If you put $10,000 in a qualified retirement account, that’s $10,000 you won’t be taxed on this year. It will compound for years and years and then be taxed as income as you take money out to live in retirement.
If you save some now, great, but you can always save more. The average American puts 6% of their salary into a qualified plan, yet financial planners urge 15% or more.
Find out about your HSA and FSA options
You will almost certainly be paying money out of pocket for healthcare, dentists and childcare this year. What if you could use money that’s tax-free?
You can do that if you have a health savings account (HSA) or a flexible spending account (FSA) through work.
An HSA is tax-free when you contribute, up to $6,750 for a family. That money can be rolled over year to year and can even be invested. However, you must have a high deductible health plan to use an HSA.
An FSA does not roll over, so be careful how much you put into this kind of account. That said, most people know what they will spend each year on things like dental care and prescription drugs.
Likewise, many company plans allow FSA money to be set aside for childcare costs. Doing so will lower your taxes every year you use these accounts by removing taxable money from your check that you will spend just the same.
Now, adjust your withholding
Once you take the above steps, be sure to review your withholding rate. Chances are, you will pay too much in taxes by leaving it be.
You could get the money back in the form of a refund the following year, but why not get your money today and use it or save it? There’s no reason to let your pay pile up at an IRS account for 12 months, interest-free.
Doing these three simple things can change your tax story from a tale of woe to one of joy, and you can make these adjustments any time during the year.
Naturally, doing it now, while you’re thinking about taxes anyway, will be the most productive way to change things for the better in the year ahead.
MarketRiders, Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. MarketRiders, Inc. is not an accounting or tax firm and the reader should discuss possible tax implications with their tax professional.