There are a number of ways that we can save money. There are coupons, shopping discounts, and even times of the year when it is best to make large purchases. We have all heard the adage, watch your pennies and the dollars watch themselves, so how does that relate to saving money and paying taxes? The answer is quite simple and this article will explore ways for you to save money and look forward to better financial health.
Bigger refunds are not better
When it comes to saving money and paying taxes you should not be looking forward to and planning on a large income tax refund check. When you get a tax refund, this is not bonus money. It is your money that you worked hard for. Think back on the past year, were there any months that money was particularly tight? What about your savings account? It is always best to keep money in savings so that you can benefit from the interest gained and it is available to you if you have an unexpected expense arise. It is recommended that you meet with a financial advisor that can help you make the best decisions on how to set up your deductions from your income tax check.
Financial planning
Everyone needs a financial plan. This plan should include your taxes as well as the best use for your money and income. Tax planning should prevent you from owing taxes but it will also reduce your chances at a refund. That is because the money that you made will be in your bank account all year long rather than waiting to receive a portion of it at tax time. Getting a refund is the same as an interest free loan that you have given to the government. That is quite generous!
Manage your pay as your life changes
The allowable deductions for your income can be managed by your life events. Successful plans on saving money and paying taxes include a year- long evaluation of these life changing events. Getting married, having children or having an unemployed spouse can all account for breaks in your taxes. These give you more money on each check. An unemployed spouse can result in $137.00 money and a new baby could add up to $27.00 per month. This is a common occurrence in growing families and who couldn’t use $160 more a month. This is a much better option than waiting all year to collect on that interest free loan that you gave Uncle Sam.
Investments
Managing your investment properly, no matter how big or small is another area that people fail when saving money and paying taxes. Tax adjustments on your investments must be done by request, you will not receive a reminder or call to manage your accounts. There will be forms and documentation that is needed to be filled out accurately by the investor. When you are managing your money, even small increments of improvement are vital to financial health. These small numbers add up over the years and you work hard for every penny that you make.
Life events can create taxable situations
The income that you earn is obviously taxable but inherited money is not taxable. However there are a number of situations that you may be unaware of that can create tax events as your life changes.
- Inherited Property: If you plan on selling the property you will have to pay taxes and there is always property taxes that are due; yearly or quarterly.
- Bonuses: Many companies offer cash incentives for their employees. They give you a sizable bonus for a job well done or a company goal was reached. However, many people are unaware that those bonus monies are taxable. This can lead to some shock during tax season.
- Gifts: A monetary gift can be taxed.
- Winnings: Money that is won or large items that are won in lotteries, game shows and other similar programs are taxable. These items often come with a high tax-price tag and if you are unprepared you could be in serious tax trouble.
It is best to meet with a financial advisor to help you build a financial plan especially if you expect bonuses, gifts or winnings in a sizable amount.
Tax preparation professionals and financial advisors both agree that preparing for the tax season is something that should be done at the beginning of the year. Waiting until March to make changes to your withholdings is much too late to affect the following year’s returns. There are a number of tax software programs that can help you track your financial plan daily and you can set up alerts for when you are straying from the plan. These programs are designed to be comprehensive with calculators and links to related programs and websites to maximize your financial success.
If you do not feel comfortable managing your own taxes, tax professionals are available year round to help you with your financial goals and to help you save money and pay taxes.