Ahh the month of January is usually cold and dark, and not just because of the weather, but rather because it’s the start of the dreaded tax season. Taxes often come with negative connotations, even though many Americans receive a tax refund eacy and every year. Though there are the people that still end up owing the tax man at year end, and quite proudly I am one of them. Every penny the government owes you at year end is equivalent to a tax free loan they have been putting to work for their own use. On the other hand, every penny you owe the government is a tax free loan they provide to you. Hopefully you have been wise enough to save and invest this additional money and you have achieved a healthy return on it throughout the year. But wehther you owe, or are owed money, you have a limited amount of time to get everything in order. So in the haste of doing your taxes, here are some tips to consider before filing.
Sometimes a little early consideration can save you a ton of headaches in the long run. It’s only January, now is the time to consider tax deferred investments like a 401K account, or an IRA. Many employers offer free matching programs and if you aren’t taking advantage then you are throwing away free money. Also, they lower your year end tax bill! I’m not talking about an interest free loan here, I’m talking about money you owe in taxes…period! Lower your taxable income and you lower the amount of taxes paid.
Make sure you consider each and every deduction and credit! If you have a year full of medical bills, or charitable donations, now is the time to pull out every receipt you have. Are you, or a child of yours, attending an institution of higher learning? Consider the benefits of educatin credits. The mortgage interest deduction is the largest tax benefit I receive each year. I hate paying interest on anything, but the mortgage interest deduction lowers a nice chuck of my tax bill each year.
Are you married? If so, consider filing jointly rather than seperately. The tax benefits of being married far outweight the single life. Other than the higher standard deduction, you may be eligible to file for credits and deductions that were once phased out based on filing under single status. I hadn’t been able to write off my student loan interest for quite a few years, but once I got married I was able to claim it once again.
I highly suggest you seek out a tax professional so they can analyze your specific situation. Online tax software is good for single taxpayers with little to no assets or write offs. However, the benefits of a tax professional become increasinginly more aware with a more complicated tax situation.