With all the craziness of 2020 it could be easy to forget that Tax day was pushed out to July 15th. Now that it’s literally just around the corner, we wanted to give you some quick actionable tips that can be applied when you file this year (or years to come). Tax time is a great time to review your financial strategy and look back at the benchmarks you’ve achieved. Here are five actionable tips you should apply to your tax strategy now.
1) Make deductible IRA contribution
What’s the first thing I am going to tell you to do as a fiduciary financial advisor? You guessed it: right if you said INVEST. The cool thing about contributing and investing in a traditional IRA is that the contributions can be tax deductible. Your advisor (hopefully me) or CPA can help you figure out if you qualify. As a wage earning individual, IRA contributions are a solid way to optimize your tax strategy. The catch is deductible IRA contributions aren’t available to individuals or families whose income is too high.
2) Health savings and Tax optimization
With the current Covid-19 global pandemic, having an adequate fund to cover potential health costs is a must. While you can use a high yield savings to stash away these funds another option is a health savings account. These accounts can lower your taxable income ( will need a high deductible health plan in most cases). Health savings accounts can lower your taxable income. Contribution limit is up to $3,500 for a single individual and $7,000 for families. Money put into these plans can also usually be invested so it doesn’t just sit in the account.
3) Collect all your credits and deductions
When I have conversations with folks I usually hear them ask “How can I pay less or no taxes?” While you can’t stiff Uncle Sam, you can look for ways to pay less. This includes collecting all your credits and digging for your deductions. You can receive credit and deductions for items including but not limited to:
- Mortgage interest
- Student loan interest over $600
- Tuition and education costs
- Charitable gifts
4) Optimize your withholding
Do you want your money now or later? Most folks would say they like receiving a bigger refund. I, on the other hand, want my money now so I can invest it. Whichever side you lean on make sure to check your withholding amount and adjust as needed. You can increase the amount of taxes withheld from your paycheck or decrease by filing a Form W-4.
5) Are you a business owner? Claim all your write offs!
I started my business last year, and when I was preparing to file I realized right away the advantages of a business when it comes to taxes. As business owners we must claim all of our deductions and write offs. This can be very beneficial to your business and the amount of cash you get to keep on hand. One way to stay organized is to have a business checking and credit card. That way you can automatically download expenses throughout the year and keep things separate from your personal accounts.
We know that tax time can be stressful, but by paying attention to deadlines and staying organized you can make your time much smoother.
As always, reach out to me or anyone on the Basic Brown Nerds team for tips and advice.