Tax day has come and gone. Whether you e-filed at the deadline — or have already spent your refund — it’s always nice to be able to breathe that sigh of relief.
Experts say you shouldn’t take your eye off the tax ball, however.
If you’re looking to trim next year’s bill, the time to start planning is now.
“You really can’t do much to change your taxes after the fact, so it’s important that people be focused on those beforehand,” says Greg Rosica, contributing author to the EY Tax Guide 2016.
Here are three ways to stay ahead of the game:
“Take out a folder, write ‘2016 Taxes’ on it and put it [in plain sight] where you keep your paperwork,” says Rosica. What goes into it? Paperwork and receipts relating to charitable contributions, certain expenses for volunteer pursuits, some job-searching costs and even start-up business costs should be included. (There’s a deduction of up to $5,000 in start-up costs available to be taken the year you incur them).
“Make sure you’re keeping good records throughout the tax year so you’re not trying to recreate the records in April,” says Melissa Labant, director of tax policy and advocacy for the AICPA.
One deduction often left for the taking? Mileage, says Labant. It can apply (in certain situations) for moving expenses, medical expenses, charitable purposes or, most common of all, distances you drive for work if you’re self-employed. (And yes, there’s an app for that. It’s called MileIQ and it’s available for iOS and Android. It’s free for 40 or fewer drives a month, or $5.99 a month/$59.99 a year if you need to track more than that.)
Plan your cash flow
If the amount of your tax refund was unusually high this year, consider adjusting the allowances and withholdings on your W-4.
“Let’s say you got a huge refund — that’s similar to giving the IRS an interest-free loan,” says Labant.
You’ll want to put an end to that by taking more in your paychecks throughout the year — then automatically moving that money into savings so that you don’t miss out on the opportunity to sock it away. On the other hand, if you had a significant balance due, you’ll want to adjust in the other direction so that you’re not playing catch-up next year.
If that idea gives you pause, enlist the help of a CPA or financial planner to create an income tax projection — that could help you figure out how to get the amounts on track.
Consider doing something differently
Finally, take a look at your most recent tax return. If you’re not happy with the outcome, there are a couple of things you may be able to do differently in the coming year.
If you have a significant amount of potential deductions in items like real estate taxes and charitable contributions on your plate, it may benefit you to start prepping to itemize for tax year 2016. Yes, the process is time-consuming, but it’s also cost-effective — and if you start planning for it now, you can maximize your savings.
And, if you were subject to the alternative minimum tax this year, would like to avoid it in the future? Labant explains that triggers can include a lot of exemptions, itemized deductions or falling within a certain income level. Confused? Sit down with a CPA and do some tax planning — they may be able to help figure how to save some money on this, or other things you missed out on, next year.
--- with Hayden Field