3 Ways to Save on Your Income Taxes

3 Ways to Save on Your Income Taxes

They're enjoying the free time retirement brings

You probably aren’t thinking about next year’s taxes just yet, but perhaps you should be! If you take the right steps during the year, you can avoid scrambling to find deductions in the spring. Keep the following strategies in mind, and you may be able to lower your tax liability for 2015.

Keep track of your deductions. Remember to record all of your charitable deductions throughout the year, so that you don’t have trouble recalling them in the spring. Save receipts for donations in a separate file, and all you have to do is add them up when it’s time to file your taxes. If you want to set aside money for medical expenses, considering opening a health savings account and depositing pre-tax dollars into it. This lowers your taxable income while providing you with a significant savings on out-of-pocket medical payments. If you know you’re making more money than usual this year, you might try creative strategies such as pre-paying real estate taxes. Talk to your tax professional about these, and other, creative deductions that might benefit you.

Defer some of your income at the end of the year. Toward the end of the year, you might receive a bonus from your employer. Bonuses are often a great surprise – until they trigger a higher bill at tax time! If you usually receive a year-end bonus, you could ask your boss to cut the check after January 1. That way your taxes for 2016 can be adjusted throughout the year, and you can prevent under-paying your taxes.

Self-employed workers can utilize a similar strategy by sending out the last few invoices of the year after January 1.

Save for retirement while saving on your taxes. Contribute as much as possible to your tax-deferred retirement fund. Your overall taxable income is lowered by the amount you contribute to your account. You also won’t pay taxes on the money in your retirement fund until you begin taking distributions in retirement. These funds make it simple to save for retirement while also reducing your tax liability.

As always, consult with your tax professional before implementing these, or any other, tax strategies. Just remember that you don’t have to wait until spring! Start taking preventive steps now, and you won’t be in such a rush at tax time.