All too often, filing income taxes can feel overwhelming. For many, hiring an accountant to handle tax submissions is a welcome relief from tax preparation in Sacramento, CA. Whether you do your taxes yourself or hire a professional to do them for you, the process will be much easier if you are organized from the beginning. As 2016 begins, it’s the perfect time to get your finances in order to reduce your stress levels and make taxes less intimidating for your next filing.
The following are several tips to help you start the year off on the right financial footing:
- Get organized: Experts recommend using a physical folder to keep had copies of all of your important documents and financial statements. Having an easily accessible resource will make life a lot easier come next April. When it’s time to prepare next year’s taxes, you or your accountant will be able to find everything that is needed without guesswork that can lead to error.
- Consider adjusting withholdings: Though many people are happy to see a sizeable refund after filing their taxes, a large refund amount may be a bad sign. Hefty refunds mean that you may be withholding too much from your paychecks. If refund money was included in your paychecks, you could have earned interest on it or used the funds throughout the year on different necessities. If you think you’re withholding too much, consult a tax expert and update your W-4 form.
- Contribute to your retirement fund: The new year is the perfect time to start saving for retirement. Putting money into a 401(k) is not only beneficial for your future, but can also be advantageous when it comes to filing your taxes. The amount that you put into your 401(k) or traditional IRA can reduce your total taxable income. Talk to your accountant to learn more about the benefits and limits on this practice.
- Purchase health insurance: It may come as a surprise to learn that having health insurance can help you avoid fines on your taxes. With recent changes to the health care system, people who do not have health insurance coverage may be required to pay a penalty. This penalty is typically $325 or 2 percent of your income, whichever is the larger amount. If you don’t have health insurance, talk to a professional about your options.
- Donate to charity: As next year draws to a close, you can embrace the spirit of the holiday season and consider donating to charity. Donating funds reduces your overall taxable income for your next tax submission. Keep track of what you donate throughout the year, and provide your receipts to your accountant before filing.
While starting to plan for next year’s tax preparation may seem superfluous, it’s always better to be prepared than to scramble with your finances at the last minute. When April 2017 rolls around, you’ll feel relieved to know that your 2016 income taxes are ready for tax preparation in Sacramento, CA. To contact a tax expert or to receive help with organizing your tax information, visit Yoder & Co., CPA.