Tax day is looming. With just three weeks until the filing deadlines, there are a lot of people scrambling to get their files in order at the last minute. Julie Wenger, CEO of Phoenixville’s Phoenix Tax Consultants, is all too familiar with it. Luckily, it’s not too late to save some money this year.
1. Utilize your retirement account. “If you work for an employer, the best way to reduce taxes is to fully utilize your retirement account. There aren’t many things you can deduct, but the retirement account is one of them. People between the ages of 59.5 and 70 often forget the value of contributing. Part time jobs taken in retirement and those IRA contributions can be very valuable.”
2. Be wary of positioning. “If you have a lot of dividend income, it’s important to try to position your dividend paying investments inside of your retirement accounts and your tax-managed investments inside your portfolios, not inside your retirement account. Since you pay tax on dividends, you would be better off having them in your regular portfolio and your dividend-paying stocks inside of your 401k and individual retirement accounts.”
3. Be knowledgeable about social security. “For anybody collecting social security, using tax-managed, tax-deferred annuities for interest, to earn interest, or using tax-managed strategies can reduce how much tax you pay on your social security.”
4. Individual retirement accounts. “Alimony income can be offset by contributing to an individual retirement account. You have until the tax filing deadline of April 18 this year to fund an individual retirement account.”
5. Contribute to health savings accounts. “Contributions to these can be a good way to reduce your income. If you are in a low tax bracket, it’s smart to start converting some of your IRA funds into a Roth IRA. Pay tax now at a low rate and let your funds grow tax free into the future to save money.”
6. Seniors should donate to charity. “Seniors who need to take a required minimum distribution at age 70.5 can send those distributions directly to charities if they tend to donate and they won’t have to pay tax on that distribution.”
7. Don’t forget medical mileage. “If you claim medical expenses, don’t forget to include medical mileage. Trips to and from appointments can add up for additional deductions. Miles to perform charitable service can also be added up, resulting in a tax deduction.”
8. Use last year’s tax return. “Last year’s tax return can be used as a guideline because often people forget to bring things into this year’s that were stated on the previous year’s tax return.”
9. Claim your college senior as a dependent. “If you have a child who was a senior in college as a full time student through May 2016, they may still be eligible to be claimed as a dependent on the 2016 return.”
10. Open a limited liability company. “People who have small businesses that may be self employed should consider opening a limited liability company to try to have further protection for the business. People who own rentals can do this as well, which can be very helpful for reducing liability.”
