Year End Tax Planning for Individuals

Filing income taxes can be a stressful experience for anyone. However, the more steps you take to plan ahead for taxes, the better off you’ll be. As the year draws to an end, it would be a wise choice for you to begin planning your strategy for filing taxes next spring. 

If you wait too long to formulate your tax filing strategy, you may end up missing out on valuable assistance from professional tax planners. 

Here are some important year-end tax planning tips for your household income taxes: 

1. Keep old returns handy. When you pull out old tax returns, it gives you the opportunity to find ways to save money on your upcoming return. Go over your past couple of years in tax returns so you can compare income and deductions of the past to your current income and deductions. 

2. Take advantage of tax shelters. United States tax laws offer consumers different ways to cut their taxes by putting their income toward specific financial goals. When you use these tax shelters wisely, it can add up to great tax savings for you and your family. 

3. Retirement accounts like 401(k) plans and traditional IRAs allow you to defer the taxes on a part of your income until you retire and decide to use that money. This will also allow you to reduce your taxable income by your contribution amount for the year, offering even more tax savings. 

4. 529 plans, Roth IRAs, and other accounts allow you to save toward college expenses or your retirement without having to pay any taxes on the income generated by those investments.

5. Be wise about your deductions. The standard deduction is automatic, but is not always the best deduction plan for you to take. If you keep records and itemize your deductions, you may actually get a much larger deduction in return.

6. If you’ve paid high medical bills over the past year or you’re a homeowner, itemizing your deductions may be more advantageous than taking the standard deduction.

7. The standard deduction is different for state and federal taxes, and while you may prefer it for one set of taxes, that doesn’t necessarily mean you should take it for both.

8. Collect extra credits. You can receive incentives on a variety of things, such as raising children, paying education expenses, making environmentally-friendly home improvements and so on. You can take these tax credits for free, but only if you know when they’re available.

9. Keep yourself apprised of possible tax credits throughout the year and keep track of paperwork and other proof that shows you deserve each one. At the end of the year, gather them all up in preparation for income tax filing so you can take advantage of them.

10. Plan as much as possible. The more you plan ahead the better off you’ll be at tax time. Get all your paperwork together early and organize it as thoroughly as you can. If you’re expecting a refund, file your taxes as soon as you can in early January to beat the crowds and enjoy the benefits of your planning as quickly as possible. 

The bottom line is that a little research, planning, and early preparation can pay off in a big way. If you begin now as 2010 draws to a close, you’ll be more than prepared for tax day and beyond.

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