Date: Jul 07TH, 2022

Prepare for Next Year’s Tax Season Now

Tax Day has passed, but it wasn’t long ago. You may not have yet recovered from the headache. So why would you want to think about next year’s taxes now? A little preplanning throughout the rest of the year can make the Tax Day headache – and tax bill — much smaller in the future. Following are some tips to make future tax seasons more tolerable.

Get organized. If your tax filing experience this year involved hunting down and tracking missing information, it makes sense to do things differently starting now. This may include using paper files to keep receipts, invoices, statements, and other critical documents, or it may involve switching to a better and more inclusive software solution that will keep all your tax information centralized. While your finances may be entirely online, you’re still likely to be receiving some amount of paper you’ll need come next tax time, so consider setting up a folder system for items like 1099s.

Check your withholdings. If you got a large tax return, you may wish to adjust your withholding now. While large tax returns are nice, you may be in more need of that money throughout the year. If you’re paying estimated taxes, it may be that you’re estimating too high. Likewise, if you owed money at tax time, it may be time to increase withholdings or estimated tax payments.

Check your IRA options. If your tax bill was too hefty for comfort this year, or your return was smaller than usual, start planning now to maximize your deductions. This might include starting or increasing contributions to an individual retirement account (IRA), either a traditional IRA or a Roth IRA, both of which can lead to large tax credits. Both traditional and Roth IRAs have contribution limits of $6,000 a year until you reach age 50. After that, you can contribute an extra $1,000 annually. The difference between the two is that traditional IRAs grow tax-free upfront, and you pay taxes when you use the money after age 59 and a half. Roth IRAs are based on taxed income, and the disbursements you take later will be tax-free. Which is right for you will depend on a variety of factors, such as your age now, your expected retirement age, and what tax bracket you expect to be in in the future.

Take advantage of an HSA. Another way to save on taxes is to take advantage of a health savings account (HSA) if it is offered by your employer. HSAs offer some incredible tax advantages: you can contribute to them on a pre-tax basis, and any interest or earnings for your HSA account grow tax-free. Finally, you can pay for qualified medical expenses on a tax-free basis, as well.

Consult with a financial advisor. A professional advisor can help you make sure you’re making the most of deductions to help you reduce your tax bill and keep more of your income.

Learn how Arizona-based Prime Wealth Advisors’ full-service retirement planning, tax, estate, and wealth management can help you ensure your retirement funds will last for your lifetime. Call 623.77.PRIME or visit our website for more information.