Another tax year has come and gone. Hopefully, you were able to snag some juicy tax savings. Now it’s time to forget about the IRS and go back to living your life, right?
As April jitters should’ve taught you by now, it’s a bad idea to wait until the last minute to prepare your return. Chances are good you’ll miss valuable deductions and credits. What’s more, you increase the odds of getting a nasty letter from the IRS, complete with plenty of mentions of the “A” word.
When it comes to your taxes, success is about paying ongoing attention to your situation. The earlier you plan ahead — even a whole year in advance — the better.
In fact, even though the filing deadline for 2016’s taxes is right behind us, there are a number of things you can do for the 2017 season to make sure your tax return is in prime shape for a big return 12 months from now.
Here are four strategies you should start working on posthaste:
Tax Tips for 2018: Get Organized
Yes, simply getting your life in order now, rather than scrambling at next year’s finish line, is one of the best things you can possibly do to improve your tax situation.
You don’t even need an advanced system. Keep a few file folders that separate things like receipts, documents from your accountant and previous years’ filings. (And consider getting a safe to put them in.)
When it comes to record-keeping, there are a few items you might not realize are important to maintain. A few examples:
- Airbnb: Do you rent out your home? You may be able to deduct expenses, such as cleaning fees, professional photo fees, towels/sheets, advertising fees and food/beverages.
- Home Improvement: If you add a room, a pool or other major addition to your home, save the your receipts. You can add these to the cost basis of your home when you sell it, which will reduce your tax bite.
- Mileage: This deduction for work can really add up. But you must be diligent with your record-keeping (note that mileage is a hot area for audits). The best way to do this is with a mobile app like Intuit Inc.’s (NASDAQ:INTU) QuickBooks Self-Employed or Microsoft Corporation’s (NASDAQ:MSFT) MileIQ.
Tax Tips for 2018: Life Events
For most people, nothing much changes year-to-year that will severely impact your taxes. But on occasion, you go through a life event — such as marriage, divorce, death, job loss, the birth of a child or the purchase of a new home — that really makes a difference.
For instance, in the event of a divorce, you’ll need to figure out things such as how to divide credits and deductions, and how to account for dependents. Another important consideration is your filing status. If you support a dependent for more than half the year, you may be eligible to use “head of household” status, which will provide more tax benefits.
A life event might also simply be celebrating your birthday. If you’re 59 1/2 or older, you can withdraw funds from your retirement accounts without having to pay the 10% early distribution penalty. However, when you reach 70 ½, you will be required to make minimum withdrawals, called required minimum distributions.
If you experience a major life event, you need to get a sense of the potential tax implications. A quick check at a site like TurboTax or a visit to H & R Block Inc (NYSE:HRB) can yield some helpful advice and guidance.
Tax Tips for 2018: Estimated Payments
The growth of the gig-economy — services like Uber and Lyft — has provided many opportunities to generate extra income. Yet the taxes can get complicated because you are a contractor, not an employee. This means you must make quarterly filings for your income taxes, Social Security and Medicare.
If you don’t do this, the penalties aren’t necessarily severe, but they’re still there. The problem is many people don’t make their estimated payments throughout the year, then get an unexpected surprise when they file their taxes — and they might not have enough money saved up to pay the IRS everything that’s owed.
An app like QuickBooks Self-Employed makes it super easy to handle your estimated taxes. The app hooks into your bank account and seamlessly allocates the expenses into the right categories.
Tax Tips for 2018: Bunching
You typically can generate more tax savings if you itemize your deductions, but many people aren’t able to meet the minimum threshold. Also, there are some deductions — such as medical expenses and unreimbursed employee expenses — that only allow for certain amounts above a fixed percentage of your income.
But there’s an interesting strategy to deal with this: bunching.
In one year, you bunch together a number of qualified expenses. Maybe you double up on paying your property taxes, or get an additional pair of glasses that you don’t quite need yet, but think you will next year. By piling up those expenses to a certain threshold, you qualify yourself for itemized deductions.
Then the next year, when you’d have far fewer expenses to itemize, you take the standard deduction. Then repeat and rinse this process every two years.