9 Easy Ways to Save Money on Taxes Next Year
Remember this sage advice every tax season for years to come.
It's never too early to start planning for next year's tax bill. The contributing financial experts for Kiplinger's Wealth Creation Channel have offered a lot of sage tax advice this year—and much of their wisdom is sure to stand the test of time. Review the following tax tips, and keep them in mind for the next time you file.
1. Trim your taxable income throughout the year.
"…increased 401(k) contributions and charitable giving are great ways to lower that tax expense. In addition, investors can consider realizing investment losses (if applicable) through a practice known as tax loss harvesting. Doing so enables investors to offset taxes on both gains and income."
Get more advice from Taylor Schulte, CFP.
2. Introduce your financial adviser and your accountant.
"If your financial adviser and certified public accountant (CPA) aren't already talking, [now] would be a great time to introduce them. Most people understand the importance of having their money work for them, but few recognize the power of coordinating the advice they're receiving. Here are six scenarios in which having your advisers working together can pay dividends for you…"
Get more advice from Bryan Koslow, MBA, CFP, CPA, PFS, CDFA.
3. Be sure you're invested in the most tax-efficient vehicles.
"Taxes can take a considerable chunk out of your gains and leave you with less of a return than expected. There are multiple solutions to minimizing tax implications including tax-managed mutual funds or investing in exchange-traded funds. The important thing is to work with your adviser to find sensible options that don't also minimize returns. Are there better options to minimize taxes while still achieving growth? Go ahead; ask your adviser."
Get more advice from Phil Simonides, CFP.
4. Donate stocks instead of cash this year.
"Charitable donations can also help reduce your taxable income, as well as provide other financial planning benefits. If you have been giving cash, consider instead giving appreciated securities. You can deduct the market value of the securities at the time of donation from your current income, and legally avoid the capital gains tax that would be due if you sold the stocks and realized a gain instead."
Get more advice from Chris Chen, CFP.
5. Keep your papers in good order.
"Organizing your documents simplifies the tax preparation process. In fact, I encourage clients to create a tax file and prepare for tax season throughout the year. By maintaining a dedicated tax file with appropriate documents, you can save time and money."
Get more advice from Marguerita Cheng, CFP.
6. Make a strategy for paying the college bill.
"It may be beneficial to pay [next year's] tuition [this year] to take full advantage of the American Opportunity Tax Credit, an above-the-line deduction worth up to $2,500 per student [in 2015] to cover the cost of tuition, fees and course materials paid during the taxable year. 40% of the credit (up to $1,000) is refundable, which means you can get it even if you owe no tax."
Get more advice from Pete Woodring, RIA.
7. Grow your retirement savings without growing your tax bill.
"Roth individual retirement accounts can be powerful tools. They allow you to put money aside today that can grow tax-free for the remainder of your lifetime, and there are no required minimum distributions, as there are for traditional IRAs. Of course, nothing worth having in life comes without a cost, and the Roth IRA is no exception. In order to get money into the future tax- and RMD-free haven that is the Roth IRA, you have to pay tax on the funds that go into the Roth IRA before they go into the Roth IRA."
Get more advice from Jeffrey Levine, CPA.
8. Remember your estimated tax payments throughout the year.
"If your income tax situation requires it, you may be making tax payments to the IRS on a quarterly basis. These payments are known as "estimated tax payments" and are reported on Line 65 of IRS form 1040. Because Line 65 also may include last year's refund if you chose to apply it this year, you may need to do some quick math to make sure the numbers are correct."
Get more advice from Michael Rose, CFP.
9. Get your financial house in order.
"… there are a number of things you can do to get organized. It’s even better when you can find opportunities and strategies to save on taxes while doing so. Here are 13 items for your financial to-do list…"
Get more advice from Mike Piershale, ChFC.