With the 2016 season wrapping up, it is time to start thinking about how you are going to save on your taxes for 2017. Here are two steps you can take now to minimize your taxes for 2017 and ensure that you are paying just the right amount.
#1 Increase Your Retirement Contributions
One of the easiest ways to minimize the taxes that you owe and maximize any potential returns is by increasing your retirement contributions. If possible, try to contribute the maximum amount of your paycheck that you are allowed to your retirement savings or pension plan. If maxing it out all at once feels like too much of a leap for your finances, start by increasing the percentage every few months of your paycheck that you put into your retirement. This will allow you to slowly adjust to saving more of your paycheck.
If your retirement contributions come out before taxes are taken out of your paycheck, you'll have to pay taxes when you take money out of your retirement fund in the future. However, right now, it will reduce your taxable income which should help lower the amount of taxes that you need to pay.
If your employer offers matching contributions up to a certain percentage of your paycheck, this is also a great way to increase the money you will get in the future.
#2 Check Your Withholdings
Many people just do default withholding, which generally work well enough. However, your holdings should ideally be set-up so that you don't owe any taxes come tax time and so that you don't get a big refund. If you set up your withholdings right, you'll get access to your money throughout the year. You don't want to have to stress to save at tax time. Even though getting a refund can feel great, that is money that you could be using throughout the year and not just getting at tax time by adjusting your withholdings.
Work with your tax specialist to figure out what adjustments to your filing status or specific withholding adjustments you need to make so that you don't owe money and have access to all the money you should throughout the year. Adjusting your withholdings can reduce your refund, but give you more access to money throughout the year.
This April, now that your taxes for 2016 are done, make sure that you are maxing out your contributions to your retirement fund and that your withholdings are set up correctly for the remainder of this year. For more information or assistance, contact a local accountant.