April 1, 2022
Whew! Your tax return is signed and sent, and Uncle Sam has been paid (or has paid you). So now you can forget about taxes until next year, right?
Well … not quite yet. It’s a good idea to do a quick review each year of how the tax process went for you to see if there’s any wisdom you can tuck into your tax file for the next year. Here are five takeaways that could make next year’s tax time run much smoother—and possibly be even more financially rewarding.
Tax takeaway 1: Pay estimated taxes during the year
If you usually owe money to the government at tax time (and ouch, a large tax payment can be tough to come up with by April 15), consider paying your estimated federal taxes once per quarter, for a total of four payments. You can pay your entire tax bill, or just the portion that your paycheck withholding doesn’t cover. Either way, it will help avoid a nasty surprise come tax time.
Tax takeaway 2: Check your withholding
When taxes aren’t paid by April 15, you could owe the government penalties and interest. When you get a refund check, you’re giving the government an interest-free loan that could increase your paycheck instead. Why not aim for the sweet spot of neither owing nor receiving by adjusting the amount of tax withheld from your pay? Your tax professional can help you determine the right filing status and withholding amount for your situation. Then, you can work with your employer’s human resources department to file a new W-4 form that will adjust your per-pay withholding.
Tax takeaway 3: Seize your retirement savings opportunities
Whether you work for an employer or are self-employed, don’t let April 15 pass without adding to an IRA or your company’s retirement plan. You’ll get a deduction for IRA contributions (or an income exclusion for 401(k) contributions). And bonus, you’ll get a tax credit for making the contributions. If you haven’t done this yet, check with your tax advisor to make sure you have all the details.
Tax takeaway 4: Consider a Health Savings Account (HSA)
Healthcare costs are skyrocketing—and it doesn’t help that a) so many healthcare plans today have a high deductible; and b) most people never qualify for the medical deduction at tax time. If you have a high-deductible health insurance plan, it may pay to look into an HSA. The money accumulates tax-free, and you’re allowed to take tax-free withdrawals for qualified medical expenses. Check with your employer, or with a bank or brokerage in your community, to see if they offer HSAs.
Tax takeaway 5: Keep your tax records up to date all year long
As you go through the coming tax year, make sure you have the records for anything tax related: receipts, cancelled checks, donation acknowledgements, credit card statements, etc. It’s especially important in the following categories:
A minute here to set up a folder and a minute there to file receipts will help you avoid the tax-time scramble.
Summing it all up
If tax time was stressful this year, take some time now to look over this year’s tax return with an eye toward improving your situation next year. You might even want to consider working with a tax professional who can not only help you with your taxes but also minimize your tax obligations and set you on the road toward a more secure financial future.
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