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Financial Resource Center

Year Round Tax Strategies

Here are some ideas that you can use throughout the year to make April 15th less taxing:

  1. Be organized. Having your records readily accessible and pre-sorted into labeled file folders will make preparing your return easier and may help you with deductions you might have forgotten. Consider using a software program like Quicken or Microsoft Money to help keep you organized. Throughout the year, add receipts and other records you know you will need into your files as you receive them. 
     
  2. Be sure to contribute to your 401(k) plan. By deferring wages into your plan, you will keep your taxable income lower, save money for retirement, enjoy the benefits of tax-deferred compounding of earnings within the account, and you may even be eligible for a "match" from your employer. Check with your employer’s Human Resources department to find out more about your contribution, investment, and possible match options.
     
  3. Use proper withholding and estimated payments. While receiving a large tax refund is nice, you may find it preferable to have more of your income in your paychecks each month. There are rules about how much you must withhold or pay in estimates to avoid IRS penalties. To understand your options and requirements, be sure to consult with a trusted tax professional to make sure you are properly covered.
     
  4. Consider giving appreciated stock to charities. If you plan to make significant contributions to a charity and have some stocks you are holding at a gain, you may want to consider giving the stock instead of cash. You may be eligible for a charitable deduction for the fair market value of the gift and not have to pay tax on the capital gain. There are rules that apply, so consult your tax advisor.
     
  5. Contribute to your IRA early. The earlier you contribute, the sooner your earnings become tax deferred.
     
  6. Manage your itemized deductions. If your itemized deductions are close to your applicable standard deduction, you may want to consider bunching deductions every other year. This doesn’t mean saving one year’s deductions for the next, that’s not allowed.  What it means it to plan and allot as many of your deductible expenses and charitable contributions into an every other year cycle, taking the standard deduction in alternating years.
     
  7. Use tax-advantaged borrowing. Not all interest you pay is tax-deductible; however the interest paid on your mortgage and home equity loans typically does qualify. Also, there may be some tax deduction benefits to margin loan interest. Again, be sure to consult with a tax advisor to be certain.
     
  8. Be careful of mutual fund taxation. Even though mutual funds pay no income taxes, you as a shareholder must report all distributions you receive. Mutual funds must distribute dividends, interest and net capital gains. If your fund has experienced much turnover within the portfolio, there may be capital gain distributions regardless of whether the fund's value has increased or fallen.
     
  9. Consider tax-exempt bonds. The interest on bonds issued by state and municipal entities is exempt from federal taxation.
     
  10. Get help early if you have any complications. If you have stock options, think you may be subject to the alternative minimum tax, or are expecting any unusual tax items, talk to your tax advisor early in the year. Proper planning may help you avoid unpleasant surprises next tax season.

 

Taxes and Insurance