Tax time tends to come with some trepidation no matter your financial situation. Your goal is to protect your money instead of owing a great deal. To help you out, here are some tips to help minimize potential problems.
Hire a Professional
Bringing in a financial advisor is a good idea no matter how much you make and invest. They have knowledge of local and federal tax rules. In turn, they understand the steps you must take to minimize your tax liability.
Maximize Your Tax-Free Investments
Whether you have a financial advisor or not, one thing to take advantage of is tax-free investments. These are funds that lower either your gross pay or accept money after taxes are removed.
A 401(k) is an example of a tax-free investment. The money comes out pre-tax, thus lowering the amount that gets deducted. Outside of work, a Roth IRA is funded with post-tax funds. The benefit of this investment is it can be maximized up to April 15th, the tax filing deadline.
Another investment is a health savings account (HSA). This is tax-free in two places. The first is when it’s deducted from your paycheck. The second is during tax filing season. In a way, an HSA is the most secure form of investment.
Consider Your Tax Deductions
Paycheck tax deductions can be a boon or bust. If you have several dependents, then adding deductions helps maximize your pay. Furthermore, you aren’t penalized as much at tax time.
On the other hand, if you take deductions without dependents, then your tax liability is greater come filing time. In other words, although you have more to spend from your paycheck it gets taken back at tax time.
File Quarterly Taxes
If you are a business owner, then filing your taxes quarterly protects your money when you have to file your annual information. Rather than paying it as a lump sum at the end of the year it’s broken down into smaller installments.
This also means you must save a portion of your income for quarterly filings. In the end, adopting this practice is good no matter how small your business is. Should your income expand, then you could hire a financial advisor to help you sort things out.
As you see, there are several opportunities to protect your money when tax time comes. If you haven’t set up a 401(k), Roth IRA, or HSA yet, it’s best to quickly do so to maximize the shield around your income.
