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The beginning of the year, as April approaches, is when you'll typically see lots of articles featuring tax tips. It's a mistake to think that the end of one year or the beginning of the next are the only time to focus on taxes. There are smart tax moves to make now and at other times during the year, and the more of them you act on, the smaller your tax bill might be.
Here are 11 tax moves to consider:
- Plan and strategize. Don't leave much of your tax situation to chance. If you spend a little time thinking about your taxes and running some numbers, it can lead you to some money-saving strategies. For example, see whether it looks like you'll be better off itemizing deductions or taking a standard deduction for this tax year. If you'll be itemizing, you may want to "bundle" some expenses, such as donations to charity, front-loading some of what you'd donate next year into this year, to boost your deductions. You might also pay a property tax bill due in January of 2017 in December of 2016, in order for it to count this year. You might plan and strategize about some of the following, too.
- Contribute to retirement accounts. Sure, you might already be planning to contribute to your IRA and/or your 401(k). That's great. But why wait until the last minute to do so? The sooner you make your contributions, the sooner that money can begin working for you.
- Optimize your retirement accounts. Speaking of your retirement accounts, how are they invested? Are your balances growing at a good clip? Be sure you've made savvy choices with those accounts. For example, if you're still decades from retirement, it makes sense to be heavily weighted in stocks, not bonds. If you're approaching retirement, you might want more stable stocks and more bonds.
- Think about your holding periods. If you own stocks and you're thinking of selling some in the near future, give taxes a little thought. Don't base your decision solely on taxes, but know that most of us face long-term capital gains tax rates (for qualifying assets that were held at least a year and a day) of 15%. Short-term capital gains face your ordinary income tax rate, which could be close to twice as high. So if you've held a stock you want to sell for 11 months, think about whether you might want to hang on for another month (and a day!).
- Open a Health Savings Account (HSA). If you have a qualifying high-deductible health insurance plan, you may be able to take advantage of HSAs. You fund an HSA with pre-tax money, lowering your tax bill. That money can be used tax-free for qualifying healthcare expenses. The money in the account can accumulate over years, too, invested and growing. Once you turn 65, you can withdraw money from an HSA for any purpose, paying ordinary income tax rates on withdrawals.
- Open a Flexible Spending Account (FSA). This is another account that accepts pre-tax dollars and lets you spend them tax-free on healthcare expenses. It's not quite as wonderful, though, as you need to use most of your contribution each year, or you lose it. Still, if you plan well, this can save you a lot in taxes.
A 529 plan can help you save for college and save many tax dollars, too. Image source: Will Folsom, Flickr
- Contribute to a 529 plan. 529 plans are designed to help you sock away a lot for college expenses. Money in them grows tax-free and distributions taken to pay for qualified education expenses are not taxed, either. Better still, many states offer tax breaks for their residents who sock money away in the state 529 plan and some states offer tax breaks for money saved in another state's plan (which might be more attractive than you own state's plans). 529 plans sport generous contribution limits of up to several hundred thousand dollars per beneficiary.
- Revisit your filing status. You may unwittingly be neglecting to use a filing status that could give you a lower tax bill. The "single" filing status isn't the one to use, for example, if you're a single parent or support a dependent. If so, the "head of household" status will give you more favorable tax rates and a significantly higher standard deduction. (For 2016, for example, the standard deduction for singles and married folks filing separately is $6,300, but it's $9,300 for heads of households.) If you're married, run the numbers to see whether you're better off filing jointly or separately.
- Organize your receipts and track spending. Don't put off organizing your receipts and tax papers until a few days or weeks before the April deadline. It's best to have a "taxes" folder or shoebox open all year round, into which you can drop any receipts or other documents that will support your tax return. For example, you may be able to maximize your use of the Child and Dependent Care Credit if you have receipts for when you sent your kids to day camps -- and even if you drop a parent off at an adult day care while you work. Track your spending, too. if you find that you're spending a lot on healthcare, that might mean you'll be able to itemize your deductions.
- Prepare your return, if you filed for an extension. Did you file for an extension back in April? Well, you need to prepare and file your return by October 17, 2016. Sure, it's a while away -- but why not get it done and off your to-do list? That way you won't forget and possibly end up with a penalty.
- Hire a tax pro. There's no shame in hiring someone to help with your tax strategizing and tax-return preparation. In fact, a good tax pro will know far more about the tax code than you do and may be able to lower your tax bill while suggesting effective strategies for you. Don't just hire anyone, though. Ask around for recommendations. Consider hiring an "Enrolled Agent," a tax pro licensed by the IRS who is authorized to represent you before the IRS if need be. You might find onethrough theNational Association of Enrolled Agentswebsite.
Take action on some or many of these smart tax moves, and you may be able to pay hundreds or thousands less in taxes each year.
The article 11 Smart Tax Moves to Make Right Now originally appeared on Fool.com.
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Longtime Fool specialistSelena Maranjian, whom you can follow on Twitter, owns no shares of any company mentioned in this article.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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