Most people don't like to think about their taxes until April, and that can result in making many costly mistakes. Your taxes affect you every day, so being mindful of how the government claims its share of your money is a good way to ensure you are getting the most from your earnings.
With only a short time before the end of the 2018 tax year, you may want to take a closer look at some of the mistakes you may be falling into that could cost you dearly on your tax returns. In fact, you may decide that having a professional review your taxes helps you find more ways to minimize your tax ramifications.
Deductions and credits
Since not many people study the tax laws, especially since they change so rapidly, it is not uncommon for taxpayers to miss credits for which they are eligible. Tax credits save you far more than deductions because a deduction may only lower your tax bill by a percentage whereas you receive the full amount of the credit. The government offers credits for a variety of reasons, such as caring for children, spending for education and improving your house to make it more energy-efficient.
You may also have deductions, but they are difficult to claim if you have not kept track of your spending over the year. The IRS requires proof of deductions you claim, so tax advisors recommend keeping a file where you can drop any receipts for money you spend on medical care, child care, charitable giving and other deductible expenses.
Other ways you may be able to save money on your taxes include the following:
- Making your stock-selling decisions based on the maximum possible tax advantage
- Selling holdings to offset capital gains or losses
- Using a pre-tax health savings or flexible spending account for tax-free spending on health care expenses
- Using a tax-advantaged method of savings for your retirement, including a 401(k) or an IRA
Your IRA or 401(k) may also have a required minimum distribution amount that you must withdraw to avoid tax penalties, which can reach 50 percent of the RMD. You may wish to set up your account for automatic distribution, so you do not miss the distribution deadline, which can be like throwing away thousands of dollars a year.
If you have investments, retirements accounts or complex earnings, the assistance of a professional tax preparer can be of great benefit. An attorney with training and experience in federal and Oregon tax laws can help you create a strategy for the most efficient use of your money.