5 Ways to Save on Your 2017 Taxes
You may think it's too early to start thinking about your 2017 tax return, but in fact, planning right from the beginning of the year gives you the greatest opportunity to save money on your taxes. The earlier you start spending with taxes in mind, the easier it is to maximize your deductions and credits.
Medical expenses
Now that medical expenses have to be more than 10% of your adjusted gross income to count as a deduction, most people have to really work at it to get enough expenses to qualify.However, you can maximize your medical deduction by grouping expenses in the same year. For example, if you had planned to have a non-emergency medical procedure done in November, consider waiting and having it the following January instead. Then, at the end of that year, work in as many medical expenses as you can that would normally fall in the following year. The idea is to group your expenses so that in one year you have two to three years' worth of medical expenses, and in the preceding and following years you have almost no medical expenses. During the year with a lot of medical activity, you have a good chance of collecting enough expenses to end up with a significant medical deduction.
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Charitable contributions
Donating money and items to charity is a nice way to "do well by doing good." It's easier to donate significant amounts of money if you spread your donations out over the whole year, instead of making donations just once or twice a year. At the end of the year, you can check your records to see how much you've donated so far, and if you're running a little short, you can raid the attic and the garage to find unused items that you can donate to pad your contributions for the year. Pairing high levels of charitable contributions with your high-medical-expense years is particularly valuable tax-wise, because both are itemized deductions. You can group lots of itemized deductions together in one year to get as high a deduction as possible, then use the standard deduction in other years.
IRA contribution deduction
The government knows how important it is to save for retirement, and it wants to help you do so by making retirement-account contributions deductible. Like charitable donations, contributions to individual retirement accounts (IRAs) are easier to maximize if you spread them out over the year instead of waiting until the last minute and making one large, panicked contribution. Spreading out your IRA contributions is also smart from an investing standpoint. If you put off your contributions until the last minute, you may be forced to invest a large amount of money at unfavorable prices.
Note that you cannot deduct your IRA contributions if your income exceeds a certain threshold, and that limit is much lower if your employer (or your spouse's employer) offers a retirement plan. See how much of your contribution, if any, you can deduct here.
Savers tax credit
IRA contributions are doubly valuable: Not only can you deduct them, but they could make you eligible for a tax credit, too. The Savers Credit is a percentage of your IRA contributions for the year based on your income. For 2017, your income must be under $62,000 if married filing jointly, $46,500 if head of household, or $31,000 for all other filers to qualify for the credit. The Savers Credit isn't just for traditional IRA contributions; it applies to 401(k) contributions and even Roth IRA contributions.
Educational expenses
Ever thought about picking up a class at your local community college, or maybe finally getting that degree you always wanted online? Your educational expenses and those of your dependents can qualify you for tax deductions and credits. The Lifetime Learning Credit and American Opportunity Credit are probably the most valuable education-related tax breaks you can claim, but the tuition deduction and student loan interest deduction are both very nice as well. Because the latter two deductions are taken out of your income before calculating adjusted gross income, they can help you to qualify for other credits and deductions for which you might otherwise be earning too much money, such as the aforementioned Savers Credit.
Tax planning isn't just for the rich
Tax planning is essentially the art of squeezing the maximum benefit out of the available tax breaks. You don't need to make millions or turn your life upside-down to claim most of these breaks; many are easily available with a little forethought and some careful scheduling. If you want to dive into more intensive tax-planning options, consult with an experienced tax advisor for ideas.
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