Nothing can make paying taxes fun, but there are ways to make tax time less costly and less of a hassle. The moves you make throughout the year can make a huge difference when April 15 rolls around. If you are not already taking these steps, you still have time to reduce your tax liability and keep more money in your pocket.
1 Make Sure You Are Obamacare-Compliant
The implementation of the Affordable Care Act made filing taxes more complicated, but that is not necessarily a bad thing for your finances. If you earn less than 400% of the Federal poverty level, you could be eligible for a subsidy based on your insurance costs, and that could lower your tax liability and give you a bigger refund.
If you get your health insurance from your employer, you do not have to do anything to remain Obamacare-compliant. If you buy a plan on your own, you can check your eligibility for benefits – and subsidies – on the healthcare.gov website.
2 Up Your 401(k) Contribution
If you are contributing to your 401(k) plan, you are already enjoying the tax and wealth building benefits of the plan. Increasing the amount you contribute to the 401(k) can save you even more money and reduce your tax liability even further.
One of the best ways to put your money in your pocket and reduce your taxes is to sign up for an auto-escalation plan. Many companies allow you to automatically increase the amount you contribute to the 401(k) every year, taking the pain and effort out of the process and helping you save for a better future.
3 Fund Your IRA
If you are eligible, contributing to a deductible IRA can reduce your tax liability this year. Funding an IRA is a great way to save for the future, and a great way to lower your taxes right away.
You can also consider a Roth IRA, which exchanges the up-front tax deduction for tax-free treatment in retirement. A good financial planner can help you decide which IRA option is best, based on your tax bracket and specific needs.
4 Adjust Your Withholding
The previous three steps allowed you to reduce your tax liability. The last step is to start putting that extra money in your pocket right now. You do not have to wait until April 15 to collect the money the government owes you. Adjusting your withholding will give you a fatter paycheck right away.
Adjusting your withholding is fast and easy. All you need to do is complete a simple form – available from your employer. Once you do, you can start enjoying more money in your paychecks month after month.