Year Round Tax Savings Strategies

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

1. Be organized. Organizing your records makes preparing your return easier and can help you catch deductions you might forget. Think about using software like Quicken or Microsoft Money to stay organized. Also, keep a file of receipts and other important records you know you’ll need.
2. Be sure to contribute to your 401(k) plan. By deferring wages into your plan, you will lower your taxable income, save for retirement, benefit from the tax-deferred growth of earnings within the account, and likely receive some form of "match" from your employer.
3. Use proper withholding and estimated payments. While getting a large tax refund is nice, it’s not usually wise to let the government hold your money until they refund your overpayment. There are rules about how much you must have withheld or paid in estimates to avoid IRS penalties. You may want to consult with your accountant to ensure you’re properly covered.
4. Consider giving appreciated stock to charities. If you plan to make significant contributions to a charity and have stocks that are currently at a profit, you might consider donating the stock instead of cash. You can receive a charitable deduction for the fair market value of the gift and avoid paying taxes on the capital gain. There are some rules that apply, so consult your advisor.
5. Contribute to your IRA early. The sooner you contribute, the faster the earnings become tax-deferred.
6. Manage your itemized deductions. If your total itemized deductions are close to the threshold needed to utilize them, consider bunching deductions every other year.
7. Use tax-advantaged borrowing. Not all interest you pay is tax deductible. The interest on your mortgage and home equity loans is treated better than the interest on credit cards. Additionally, there may be some tax benefits to margin loan interest.
8. Be aware of mutual fund taxation. Although mutual funds do not pay income taxes, you as a shareholder must report all distributions you receive. Mutual funds are required to distribute dividends, interest, and net capital gains. If your fund has had significant turnover within its portfolio, there may be capital gain distributions even if the fund’s value has decreased or remained the same.
9. Consider tax-exempt bonds. Interest on bonds issued by state and municipal entities is exempt from federal taxes.
10. Seek help early if you experience any complications. If you have stock options, suspect you may be subject to the alternative minimum tax, or expect any unusual tax items, consult your tax advisor early in the year. Proper planning can help you avoid unpleasant surprises during the next tax season.