As the April 15th tax deadline nears, there are a few savvy actions you should be aware of before filing your return that can impact your bottom line either now or in the future. These tips can give you a head start.
Check Your Tax Withholdings – It’s nice to get that tax refund every year, and there are those who wait for it, like an annual financial boost. However, a bigger paycheck might provide your budget a little more comfort, or the extra funds could go toward savings. Conversely, you may find you have to pay taxes this year. The IRS has a useful tool, the Tax Withholding Estimator [Link: https://www.irs.gov/individuals/tax-withholding-estimator] to adjust your W-4.
If you haven’t checked the withholding amount on your paystub in ages, it is worth doing. If you think about it, paying too much in taxes with each paycheck during the year, and then getting the overpayment back months later after filing your return as a tax refund, is like giving the government a loan without interest.
Increase Your Retirement Plan Contributions – The money you put in these accounts, such as a 401(k), reduces your taxable income for the year, which reduces your tax bill. And this money isn’t taxed until you withdraw it. If you have an IRA through JD Bank, the contribution limits for 2019 and 2020 are $6,000 plus $1,000 in catch-up contributions. If you have a 401(k) at work and it is matched by your employer, try to contribute the amount that will be matched by employer contributions.
Those funds are tax-deferred and grow tax-free. This is a good time to review if you are investing enough toward retirement, and whether you can increase the percentage moving forward. You should try to increase your contribution amounts annually to keep pace with inflation rates.
Make Charitable Contributions – Supporting your favorite causes and charities is not only good for the soul, it has benefits as a tax deduction. There are several ways to give, either as cash, or stock held for over one year.
Get Your Credit Report – Data breaches and system hacks unfortunately are constantly in the headlines. As you review all of your finances, it’s smart to also get a copy of your credit report to make sure nothing has been falsely reported. Federal law allows you to get a free copy of your credit report from the three credit reporting companies – Equifax, Experian and TransUnion – each year. Your credit card company should be able to provide this to you.
Build A Plan of Attack for Your Debt – If you have outstanding credit card debt, vehicle loans, mortgage and student loans, review these debts. Explore if there is any flexibility in your budget on these repayment timelines as you take a wide view of your personal finances. Look closely at your spending habits as you collect your receipts for taxes and consider if consolidating your debt with either a personal loan or home equity loan is wise. Often a simple, yet smart money move will be changing to a high interest checking account such as ZydeCash for greater returns on your balances, as well as making one extra payment on your mortgage annually.
Review Your Beneficiary Designations – This move is not just for the wealthy. Make sure who you have named as the beneficiary for any retirement accounts, life insurance policies and other estate planning documents are up to date. And if you don’t have an estate plan, it’s time to look into it. JD Bank has an experienced team that specializes in estate planning, trusts and retirement plans.
As the time to file your taxes looms, one always realizes how much impact on your bottom line that taxes can have. When your taxable income exceeds certain limits, your tax rate goes up with what tax bracket you fall into. It clarifies the benefit of contributing higher amounts to a 401(k), a Health Savings Account, or a traditional IRA throughout the year. Not only for retirement – and planning for the future is important – these deductible contributions can also save you money in the near term by placing you in a lower tax bracket.