5 Key Tax Preparation Tips: Why “Tax Season” Actually Begins Now
Most people consider “Tax Season” to begin in April. What many don’t realize is by investing a little tax preparation time now, you can reduce your taxes owed or increase your return by securing big deductions for yourself.
Before the year is over, here are some key tax tips that can help you maximize your personal tax refund and lower your tax withholdings.
Maximize your tax refund
Some prefer to have more taxes withheld each paycheck throughout the year so they can receive a big refund at the end of tax season. This is understandable; it can feel great to receive a large influx of income in the middle of the year. Here are some ways to make sure you get the biggest refund.
Increase your withholding (and decrease your amount of tax exemptions) each paycheck by adjusting your W-4 form. TurboTax provides a handy resource to help with this.
Itemize your deductions
If you aren’t already, start saving receipts and invoices showing any payments you’ve made for any of the following needs. If you set up a folder for these now, you can easily add receipts as they come in and be ready when filing taxes.
- Charitable donations
- Moving expenses
- Education costs
- Childcare costs
- Mortgage interest (Bonus Tip: Pay January’s mortgage payment before December 31 to add to your mortgage interest deduction.)
- Student loan interest
If married, calculate your refund when filing a joint tax return vs. a separate return. While joint filing is usually the best approach, depending on your unique circumstances you might increase your return with a separate filing.
Minimize your tax payments
Instead of receiving a larger tax refund at the end of the year, you might prefer to keep more of your money each paycheck. Many prefer this approach because it gives them more cash on hand, and allows them to invest that extra money throughout the year to collect returns on interest. Here are things you can do to minimize your tax payments.
Increase the amount of tax exemptions you claim (and decrease your withholding) each paycheck by adjusting your W-4 form. Here is another link to the TurboTax resource listed above to change your W-4.
Bonus tip: Major life changes have a way of increasing or decreasing your taxes. To avoid surprises, consider changing your W-4 form when you:
- Get a second job or change your job
- Get married or divorced
- Become unemployed
- Have or adopt a baby
Increase your 401(k) contributions
- All 401(k) contributions are made pre-tax, so increasing your contribution will decrease your take-home pay, also decreasing the amount of taxes you must pay. You can play with the numbers using this 401(k) calculator.
- Vital note: If your employer offers a 401(k) contribution matching program, Take advantage of it. Given time, it is likely to yield a strong return on your investment.
Set up an FSA or HSA
- These allow you to spend pre-tax dollars for certain medical expenses in advance. Learn more about FSAs and HSAs in our piece on the benefits of Open Enrollment.
- Important Note: At the end of the year, you will lose any money left in this account. Forecast ahead so you only put in as much as you will need throughout the year, or as close as you can get.
For a wide range of tax preparation information from the nitty gritty to the high level and strategic, the TurboTax blog is a helpful resource for tax-related solutions.
**NOTE: This information is for educational purposes only and should not be taken as legal tax advice. Speak with a tax professional before taking action to learn what would work best for your situation.**
Posted by: Jacob Schnee
About the author: Jacob joined Unitus Community Credit Union as Marketing Specialist in 2015 after escaping his native New York City and spending a one-year layover in Ann Arbor, MI. His life’s work is to remove the cheese from marketing and advertising and he is thrilled that Unitus shares his passion. When not creating content for conscious consumption he is viewing, playing, or reading and writing about basketball. He has also been known to enjoy meditation, yoga, poetry, hiking, cooking and doing uncanny impressions.