Top 10 Tips for Preparing for Tax Season
When tax season is in full swing, millions of Americans are looking for ways to maximize their deductions, while seeking additional opportunities to increase their likelihood of a refund or to reduce the amount owed to the government this year. Simple steps can be taken today that will have a significant impact on tax preparations.
- Begin filing your receipts scrupulously. Any receipt lost is money lost.
- Adjust your deductions to ensure you don’t give Uncle Sam an interest- free loan.
- Increase your employer-sponsored retirement plan contributions as much as you can afford. If you are already maxed out, ask your financial planner about setting up a Roth IRA.
- Look into using a tax-deferred variable annuity in your retirement savings portfolio to cut taxes and decrease paperwork for your taxes. Because earnings from a variable annuity are tax deferred, they don’t need to be reported each April. It’s only when the earnings are withdrawn (usually during retirement) that the
income has to be reported to the IRS.
- Set up a tax savvy savings fund for your kids’ college savings.
- Talk to a lawyer about updating your will or living trust to ensure Uncle Sam doesn't add to the grief if the worst happens this year.
- Check the tax effectiveness and returns of your investment portfolio and consider selling off mutual funds that have high portfolio turnover. Commit to a “buy and hold” strategy for your non-tax-sheltered investments so the earnings are taxed at the capital gains tax rate rather than the usually higher ordinary income
- Clear items you no longer use out of your basement, attic and garage and donate them. Your old sofa is a charity’s bread and butter-and a deduction for next year.
- Invest in a good financial management software package so next year’s records are easy to generate and file electronically.
- Maximize your return by consulting with a financial advisor.