Making these simple moves now can take a big bite out of what you owe Uncle Sam next April.
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. As Money Talks News founder Stacy Johnson wrote recently:
Whether you use software, pay a pro or do them yourself, understanding how taxes work can pay off in the form of hundreds, or even thousands, more in your pocket. Just as important, knowledge gives you confidence: No more wondering if you’re doing everything you can to make your bill as low as possible.
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 to think about how you can save. Following are six 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 and take the contents to your favorite thrift store for a tax deduction. 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.
This strategy works for lots of things, small kitchen appliances, gadgets, knickknacks. Anything you no longer like or use can move on to a new home.
This strategy has a double benefit. Not only do you get a deduction that can lower your tax bill next year, but you’re also making space just in time for the rush of holiday gifts that will be arriving shortly.
If you have a hard time getting rid of stuff, check out some new strategies in “7 Ways of Decluttering 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.
You also can contribute money to your own IRA and get the same tax benefits. IRA contributions for most workers are maxed out at $5,500 in 2016, with a catch-up contribution option of $1,000 making those 50 and older eligible to contribute up to $6,500.
Depending on your tax bracket, you could save 30 cents in taxes for every dollar you contribute to an eligible fund. Remember, there are income caps for some of these deductions, and you get an immediate tax benefit only if you have a traditional 401(k), 403(b) or IRA.
If you have a Roth IRA, you don’t get the tax benefit upfront, but you will get it later after you retire. Keep in mind that contribution caps for Roth IRAs go down as you climb the income ladder.
3. Dump your stock losses
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If you have some stocks, grab a cup of coffee and spend 30 minutes reviewing your portfolio.
Are any perpetually underperforming? If so, now is a perfect time to dump them. You can deduct up to $3,000 in net capital losses from your income. For some taxpayers, that’s enough to save them as much as $1,000 at tax time.
While you’re reviewing your stocks, don’t forget you can donate them to charities, too. Make a gift of some stock to your favorite 501(c)3 organization. Then, take a deduction for its full value.
You avoid the capital gains tax by making a donation and potentially reduce your tax liability with the deduction. In addition, because the organization is tax-exempt, it can cash in without paying taxes either. It’s a win-win.
4. Max out your health savings account
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Millions of Americans who have an eligible high-deductible health insurance plan can save money by opening or adding to their health savings account, or HSA.
These accounts let you use tax-free dollars to meet your deductible, co-pay and co-insurance requirements. In 2016, you can contribute up to $3,350 to your HSA if you have single coverage, or $6,750 for a family plan.
In 2017, the limit is set to increase by $50 for individuals, but stay the same for families.
If you have the financial means, maximizing your HSA contributions 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 the fact that I feel confident managing my own money and savings, I recently sat down with an adviser for a financial checkup. 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.
You can read this article for some tips on how to evaluate financial advisers.
(Remember, some professionals might be more interested in making money than working in your best interests. Under new rules issued by the Department of Labor, financial advisers will be held to more stringent standards, but those rules don’t kick in until next April.)
When you locate the right adviser, he or she should be able to provide information and advice on how to minimize your tax liability, maximize investments and cut out unneeded expenses and fees.
6. Spend a little quality time online
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Far cheaper than meeting with an adviser — though requiring 60 minutes of your time — take our simple, online tax course: Slash Your Taxes and Have Fun Doing It. The one-hour course (now at the reduced rate of $15 with the coupon code MTN1515) is designed to help you legally slash your taxes and save hundreds or thousands of dollars a year.
What questions do you have about taxes? Money Talks News has a trove of articles that focus in on topics from tax credits and deductions, tax tips for the self-employed, how to get free assistance with tax filing, how to avoid an audit, and more.
Do you have any great tips for saving $1,000 quickly? Share your thoughts by commenting below or on our Facebook page.
Ari Cetron contributed to this post.