Great advice for planning your taxes from Efile.com. Article originally posted here can be read below.
How to Pay Less Taxes – Tax Planning Tips for 2016
What Is Tax Planning?
Tax Planning is taking advantage of all the tax knowledge and tools at your disposal before December 31 in order to estimate your income taxes, qualify for the right credits, deduct the most expenses, and ultimately to reduce your taxable income and pay less taxes.
What is Tax Time?
Tax time is the period that you need to prepare and file or efile a tax return, as well as pay any taxes you owe. This is usually from January 1- April 15 (April 15 is the general tax return filing/tax payment deadline). However, we recommend tax planning throughout the year, not just during tax time.
Why Plan Now?
- Maybe you don’t want to worry about tax planning because your living situation has not changed from last year.
- Maybe you don’t want to spend the time to plan because your tax return is not due until April 18 of next year.
- Maybe tax planning just bores you! However, a little planning now can save you money next year–and we all like saving money!
- Tax planning should really take place all throughout the year, but it is not too late to start.
- Even though your tax return will not be submitted until April of next year, you only have until December 31 of this year to qualify for any tax deductions and tax credits. Take action now to claim deductions and credits on your next tax return and have your best Tax Year ever!
When to Do What Type of Tax Planning
There are four phases of tax planning throughout the year:
Year-Round Tax Planning: January 1-December 31
Get your next tax refund now through a paycheck withholding adjustment. Make sure to keep track of all your tax records (W-2’s, receipts, canceled checks, etc.) so you’re ready to file next year’s tax return or for a tax audit.
- Adjust your Paycheck Withholdingnow and get your tax refund earlier.
- Money Saving Tips for Tax Payments
- Get your old or previous Tax Year AGI
From January 1-April of each year
Make sure you have received all W2 forms, pay stubs, and other tax documents in order to complete and file your tax return. You can start filing your return once the IRS begins accepting returns in mid-to-late January, but you have until April 18 to file your 2016 return on time. Otherwise, you may face penalties for filing late. Consider efiling your tax return so the IRS receives it faster!
- Important Tax Preparation and Planning Checklist:Do you have all your tax documents ready? It’s time to prepare and file or efile your tax return! Print out the efile.com tax preparation and planning checklist and see how easy it is to keep track of all the W-2’s, 1099 forms, and other tax documents you need to prepare and file your Federal and State Income Tax Returns faster and easier!
From April-October of each year
If you have efiled or filed a federal tax return extension, make sure you have all the tax documents you need to complete and file your 2016 return by October 16, 2017.
Adjust your paycheck withholding now and get your tax refund earlier.
Nobody should have to plan for a tax audit.
From October-December 31 of each year
Here is a list of action items you must do in order to claim tax breaks on your current year tax return:
- Year-End Tax Planning Guide:Save money on your taxes by claiming tax breaks on your Tax Return by December 31!
- Year-End Tax Deduction Planning: Deductions reduce your taxable income and can help you increase your tax refund. Our list of deductions cover various life categories, so you can save money on all your expenses or payments!
- Year-End Tax Credit Planning: Credits reduce your tax payments. Take advantage of credits in numerous life categories and save hundreds or thousands of dollars on your Tax Return!
- Year-End Tax Planning Tips for Tax Year 2016:These tax planning tips for Tax Year 2016 can help you estimate your taxes and plan your deductions!
How to Begin Planning Your Taxes in 3 Easy Steps:
Tax Planning Step 1: Check Your Paycheck Withholding!
Do you want your tax refund in your paycheck? Recent IRS statistics show that almost 100 million (or 75%) of all Americans get a tax refund check, and the average refund check is for about $2,400. So why not get some of this refund now as part of your regular paycheck? Every month most taxpayers pay an average of $200 too much in income taxes.
To find out how much in taxes you should be paying each paycheck, use our TAXOMETER.
Tax Planning Step 2: Use the efile.com FREE TAX CALCULATOR to Estimate Your Taxes!
Where can you find your estimated income? If your income has not changed from last year, simply begin by entering the information from last year’s W-2 into the efile.com FREE TAX CALCULATOR. Alternatively, you can use the year-to-date income from your latest pay stub to estimate your expected annual income for the year (keep in mind that the efile.com tax calculator is based on currently available figures which may be subject to adjustment).
Tax Planning Step 3: Keep Tax Records!
Which records? Well, the IRS recommends that you keep all tax-related records for 3 years in case of an audit. But some old tax documents, such as last year’s W-2’s, can come in handy when you are filling out your tax return this year.
Here are some examples of tax-related documents that you might want to keep:
- W-2 forms
- Pay stubs for the year
- Mortgagepayment stubs and/or home purchase closing statement
- Last year’s tax return (for quick reference and comparison)
- Receipts from anything you might claim as an itemized deduction
- Receipts from any charity(e.g. for church tithes, disaster relief donations, etc.)
- Car mileagelog (in case of business use)
- Any receipts for business travel expenses
- Canceled checks (especially for IRA contributions and other deductions)
- Credit card statements and bank statements (to verify any deductions)
- Medicalbills (especially if they exceed 7.5% of your income)
- 1090G form (for deducting state or local income taxes)
- 1090 forms (from any dividendsor other income paid to you)
- Mobile phone bills (especially if you made charitable donations by text message)
TIP: To make your mountain of documents easier to store, try scanning them and keeping them as PDF files. This way you can print them out if you need them. If you do this, remember to back up your computer!
For more information about tax record keeping, consult IRS Publication 552 – Recordkeeping for Individuals.
8 Great Practical Tax Planning Tips
- Keep records for at least 3 years in case of an IRS tax audit. EFILE TAX TIP:For your own peace of mind, you might want to keep them longer. Start a file folder at the beginning of each year, and put all of your receipts into it.
- Check your pay stubs against your W-2(s) to make sure they add up. Even employers can make mistakes!
- Study last year’s tax return. Are there any credits and deductions which you are you still qualified to take? Are there any you did not take, but for which you now qualify?
- Deduct the cost of last year’s tax preparation. Next year, you will deduct any fees paid for the preparation of this year’s tax return. Also deduct the cost of any tax-related consultations, seminars, books, or newsletters, etc.
- Donate to charity! The IRS only requires receipts for charitable contributionsof $250 or more, but it’s a good idea to keep receipts for any donation.
- Make long-term investments. Short-term investments are taxed normally, but those held for over a year are taxed at only 15%.
- If you have planned your taxes successfully enough to receive a tax rebate, you should invest it in an Educational Savings Account, an IRA, or a savings account at your bank. Use the money to start preparing for next year’s taxes.
- You don’t have to take the standard tax deduction. Use our TAX CALCULATORto itemize your deductions, then see whether the resulting amount is higher than the standard deduction available to you. Choose the higher amount!
Additional Tax Planning Tips
Summertime Tax Tips: How do summer and taxes go together? You can take advantage of deductions that relate to all your summer activities, such as camp expenses! These summer tax tips will help you save money when you file your tax return later-helping you stay cool!
Year-End Tax Tips: We provide tips for year-end tax planning. They will help you plan your deductions and credits, as well as estimate your tax refund and/or tax payments, by December 31.
Tax Preparation and Planning Checklist: Need help keeping track of all the tax documents you need to prepare your tax return? Print out our tax return checklist and see how easy it is to “check off” all the W2’s, tax credits, and other items you need to file your return!
Tax Deductions and Credits to Claim by December 31: Before you prepare and efile or file your 2016 Tax Return (due April 18, 2017), make sure you’re aware of all the 2016 tax credits and deductions you can claim (if you’re qualified) before New Year’s Eve!
Stupid and Smart Things Taxpayers Do When Filing Taxes: Taxes can be stressful for many taxpayers. Unfortunately, they may be capable of making mistakes on their tax returns when they are stressed.
Once you’re relaxed, review our list of stupid and smart things to consider when completing your tax return!
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