Take a Few Minutes to Save Yourself $1,000 at Tax Time
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Can you really save up to $1,000 in only a half-hour? Absolutely. However, there is a catch. We have to talk about taxes.
I know! Who wants to talk about taxes in September? But getting a head start on your taxes pays off. And while tax planning isn’t anyone’s idea of fun, it doesn’t have to be long, difficult or painful.
If you already have tax debt, your first move should be to look for help in our Solutions Center. Once you have taken care of the debt, it’s time t o think about how you can save.
Following are five ways to spend 30 minutes now to save an extra $1,000 next April.
1. Find deductions hiding in your closets
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Clean out your closets so you can donate what you no longer need or use. Set the timer for 30 minutes and go wild.
Be ruthless. Those skis junior never used? Gone. The baby clothes from your 4-year-old? Outta there! The scrap-booking supplies that haven’t seen the light of day in two years? Sayonara.
Not only will you get a tax deduction that can lower your tax bill next year, but you’ll also make space before the rush of holiday gifts that will be arriving shortly.
If you struggle to get rid of stuff, check out “7 Ways to Declutter You Probably Haven’t Tried.”
2. Beef up your retirement savings
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Take 30 minutes to review your retirement accounts and see if you can afford to contribute a little more.
For 401(k) and 403(b) accounts through your workplace, you can contribute up to $18,000 — an amount that can be deducted from your taxable income. If you’re 50 or older, a catch-up contribution option of $6,000 means you can contribute up to $24,000 in total.
You also can contribute money to your own traditional IRA and get the same tax benefits. Most workers can contribute up to $5,500 to IRAs in 2017. A catch-up contribution option of $1,000 means those 50 and older can contribute up to $6,500 altogether.
Remember, there are income caps for some of these deductions, and you get a tax deduction only if you have a traditional 401(k), 403(b) or IRA.
If you have a Roth IRA or Roth 401(k), for example, you don’t get the tax break upfront, but you will get it later after you retire. To learn more about the differences between traditional and Roth accounts, check out “Confused by Retirement Accounts? Roth, Regular IRAs and 401(k)s Made Simple.”
3. Dump your stock losses
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If you are invested in stocks, grab a cup of coffee and spend 30 minutes reviewing your portfolio.
Are any stocks perpetually underperforming? If so, now might be a good time to dump them. If your capital losses exceed your capital gains, you can deduct the amount of the excess loss from your income — up to $3,000, according to the IRS.
Alternatively, you can often donate stocks to your favorite 501(c)(3) organization. Then, take a deduction for the donated stocks’ full value at that time.
You avoid the capital gains tax by making a donation and potentially reduce your tax liability with the deduction.
4. Max out your health savings account
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Americans who have an eligible high-deductible health insurance plan can save money by opening or adding money to a health savings account, or HSA.
These accounts enable you to use pre-tax dollars on eligible health care expenses. In 2017, you can contribute up to $3,400 to your HSA if you have self-only coverage, or $6,750 if you have family coverage, according to the IRS.
If you have the financial means to do so, contributing the maximum allowable amount to your HSA each year can be an excellent way to reduce your tax liability. Your HSA will roll over each year, so you can build up a healthy savings account for medical emergencies.
5. Check in with a pro
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Despite feeling confident managing my own money and savings, I sat down with an adviser for a financial checkup last year. I didn’t go into the meeting expecting much but was surprised at the outcome.
Having a fresh set of eyes looking at the numbers proved to be helpful in identifying new ways to save. It also gave me a shot of motivation to stay the course when it comes to sticking to my spending and saving goals.
The right financial adviser can provide you information and advice on how to minimize your tax liability as well as maximize investments and cut out unneeded expenses and fees.
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