Tax filing time is stressful for everyone, no matter what your accounting experience might be. Most of us really have no idea what our taxes are going to look like until we complete a file our tax returns. It doesn’t always have to be like this, however.
Preparing your tax return before the end of the year is one of the most simple ways of getting an idea about what your taxes are going to look like. Obviously this idea lacks appeal for many people, but if you are able to force yourself to fill it out early, you’ll be in a much better financial position later.
As you start to gather information to fill out your tax return early, there are a few things you should be looking for:
1. One-time Tax Events
Did you sell a rental property or a business, or think you might do so before the end of the year? If so, you can estimate the impact of the sale on your return.
If you expect a relatively large gain, you may be able to research ways to help reduce the amount of tax you need to pay on the gain. It may be that you taking a loss somewhere else, in a taxable investment account for example, may benefit you in the long run.
If you know you will experience a large loss as a result of the sale, you might be able to sell certain untaxed assets in order to balance the loss you experience on the sale.
It may even be possible to split the tax from the sale into installments over two years and so reduce your taxes for the coming year. This could also help you remain in a lower tax bracket.
2. Significant Increases in Itemized Deductions
Start to examine your spending for the year. If you had medical expenses that were higher than normal or made a large charitable donation, it is possible that you can reduce your amount of taxable income. Preparing your return early helps give you time to determine these things.
3. Loss or Gains in Business
If you have your own business and had a great year, it may benefit you to set up a new 401(k) account. By moving your extra profit to this account, it will significantly reduce the amount you will have to pay in taxes.
On the other hand, if you have recently retired, you may be tempted to live off of your savings before you start dipping into taxable accounts like your IRA, pension, or 401(k). If at all possible, you should avoiding having a year without taxable income. Most likely, after deductions, you will find that rather than zero income, you actually end up with a negative income. To prevent this, take just enough money out of an account to create a taxable income level. If you don’t do this, your tax rate may end up being higher later on.
It may be that if you an IRA, you can take money out with little or no tax penalty; you may also benefit from converting your traditional IRA into a Roth IRA.
In the end, if taking money out of your IRA simply doesn’t appeal to you, you might be able to withdraw from a taxable investment account with no capital gains tax. If you happen to be in the marginal tax bracket – between zero and fifteen percent – you will not have to pay a capital gains tax.
Ultimately, there are almost always creative solutions to reduce your tax burden each year. Preparing your return early will give you plenty of time to research deductions and other ways to off set your tax obligations for the coming year.
If you need have questions about your taxes, do not hesitate to contact the Minneapolis tax consultants at Assured Retirement Group by calling 952-657-7470 or by contacting us online.
If you have any questions about retirement in Minneapolis feel free to come pay us a visit!
Let's be honest- saving money is certainly not easy. Most of us save a small increment of our checks, and the rest goes to bills and life. In addition, we don't always know the in's and out's and trick to retirement savings accounts. Or what kind of benefits we could...read more
Grandma's house is such a simple place where so many of us have created so many memories. Baking cookies with grandma playing airplane with grandpa, running around in the backyard with our cousins. Making all of these precious memories all because our grandparents...read more
According to the Merriam-Webster dictionary, the definition of retirement is the "withdrawal from one's position or occupation. Or "or from active working life." The other definition is "an act of retiring: the state of being retired." I understand you probably know...read more
How many of us want to retire early? Basically everyone right! Who wouldn't want to retire early, is the real question. But what's an even more vital of a question than that? HOW can you retire early, especially in this economy. Retirement is often viewed as a happy,...read more
If you have not downloaded our FREE Retirement Guide yet, you most certainly should! Get your now by clicking HERE! If you are getting ready for your next phase in life- Retirement- you've come to the right place. It means you have decided to take a more active role...read more
While there are an overabundance of beautiful places in the US to retire, we like to think Minnesota is the best choice! If you already live in Minnesota, and are ever-so-slightly nearing your retirement years, you are leaning towards permanence here right? You likely...read more