If you are like most taxpayers, you feel a strong relief when your tax returns are completed and sent. Of course, this is assuming you do not owe Uncle Sam a tax bill. But the tax season should be more than just when we decide if you owe tax rebates or if you need to pay additional taxes for the IRS.
In fact, the decisions they make during the tax season tend to have a lasting impact on their ability to achieve true financial independence.
Here are five mistakes that people make in tax planning that could have a negative impact on their retirement.
- not making the most of last-minute tax cuts As the tax deadline of April 18, 2017 approaches, there are only a few ways to reduce your taxable income. One way to do this is to verify that you make the most of each adjustment to total income, tax cuts, or tax credits. Accuracy is important when filing tax returns.
But it’s just as important to make sure you do not miss any last-minute tax cuts that could increase retirement savings. Health savings account: most people do not realize until April 18, 2017 that if you go directly through your health savings bank, then you have to pay an additional health savings account for the health savings account. tax year 2016.
If you are in a health plan with a high deductible and do not have the maximum amount allowed in 2016, consider increasing your HSA donation before the tax deadline. The benefits offered by the HSAs are more than simply reducing your income tax. Health savings accounts provide much-needed protection to help pay for current and future health-related costs. However, if you are in good health, you can increase your savings for use after retirement. Since medical expenses are often one of the main concerns for most retirees, this is a good way to replenish your retirement savings plan.
In fact, when you reach the age of 65, you can use the HSA fund to pay for non-medical expenses with impunity (Note: the distribution of non-health care is taxed as ordinary income). You can contribute up to USD 3350 and USD 6750, respectively, for personal insurance and home insurance during 2016 year. If you are 55 or over 55 years of age, there is an additional $ 1000 to pay before you qualify for health insurance at the age of 65.
Just do not forget to count the contributions your employer made during 2016 with your tax year of contribution, so you can decide how much you can add to your HSA. Personal Retirement Account: Before the tax deadline of April 18, 2017, you can deposit up to $ 5500 in your personal retirement account (you can deposit $ 6500 if you turn 50 or more last year). If you are not covered by a retirement plan through employment or income restrictions, you may be eligible to deduct your contribution to the traditional IRA. This retirement savings can be invested in growth taxes and postponed to withdrawals.
Remember, there is a 10% fine before retirement age of 591/2.
However, there are some exceptions, including withdrawals of eligible educational costs, and you can buy your home for the first time in your life for up to $ 10,000. Ross’s personal retirement account offers another potential way to save for retirement, which can save taxes in the future. The contribution is not tax free, but the Ross IRA account can grow 1/2 tax free after the age of 59.
Unlike the traditional IRA, you can withdraw your total deposits (but not any income) in the personal Ross retirement account (Roth IRA) at any time without paying taxes or paying fines.
- be an active tax advisor Have you ever promised that you would be better prepared for “next year” when you tax your taxes? It is easy to enter into a goodwill cycle and commit to doing better in maintaining accurate records and organization, or using as many tax-saving measures as possible, such as paying pre-tax contributions for 401 (k ) plans, HSA or accounts
Unfortunately, many people have not fulfilled that commitment at all. The filing of tax returns as an independent activity is a reactive event. You are only reporting what has happened in the past. Yes, it is very important to do things well! However, the best strategy
- Lack of awareness about retirement savings credits Not all taxpayers can request such a tax credit.
For those whose income is eligible, this is a good way to save for retirement, while also decreasing your tax returns. The amount of savings for retirement is 50%, 20% or 10% of your retirement plan, or 2000 dollars in your personal retirement account ($ 4000 if you get married), depending on your total adjusted income (reported in your Form 1040 or 1040A). In 2017, married couples who earn less than $ 62,000,000,000,000,000 and single people who earn less than $ 31,000,000,000,000,000 could apply together.
As long as the AGI deposit does not exceed $ 45,500,000,000,000,000, the loan can be used as a head of household.
- no adjustment of withholding tax If you ask most financial planning professionals what documents contain the most in-depth information about the financial lives of others, most people will put the IRS Form 1040 at the forefront of the list.
If your tax returns always show that you have overpaid your taxes, you may miss a significant opportunity in the retirement plan. In order to change your advance, simply fill out an updated W-4 form and make this form available to your employer. You can check the IRS pre-mention calculator to estimate the correct progress for your situation. All you need to complete this Prefetch calculator is your most recent payroll and a copy of your 2016 tax return.
Then, after having calculated the correct progress, you must fill out a new Form W-4 and send it to your Payroll Department. Always remember that the central reason for changing your withholding tax is to put your money in your job as quickly as possible, instead of giving the government a 0 interest rate loan. This strategy can help you pay the higher interest debt more quickly, or increase your 401 (k) plan. Either way, you will help yourself in the future during your retirement. But it will only work if you put the tax increase in the right place.
Consider automatic savings by increasing 401 (k), HSA and other pre-tax contributions.
- Select the wrong person for tax planning and guidance There are a lot of tax software programs now, and it seems easier for you to report your own tax than before. If your adjusted total income is less than $ 64,000, you can use the free archiving software here.
It is important to keep in mind that these free archiving options usually cover only very basic returns. Not everyone is able to report taxes on their own. If you have any special circumstances, such as owning a small business or your own real estate investment, the tax code could become more complicated.
Other challenging situations include working in several states or countries, reporting investment returns or losses on taxable accounts, or declaring them as non-US citizens, which are examples that tax professionals can understand. Deciding whether to use the services of a tax professional is a personal decision.
It all depends on the confidence you have in taxes and other financial matters. Tax planning is not just about reducing the general tax. The personal income tax plan should be part of your overall financial life plan. A professional tax official is an important part of your finance team. Not all tax planners provide active tax planning services. Be sure to ask your tax experts if they will help you determine your tax savings strategy for next year. You must also coordinate the work of tax plans and financial plans.
If you work with a certified public accountant, CFP®, EA or other tax professional, make sure you contact your financial planner or other team of financial advisors. However, the tax season is not necessarily a reactive process for filing a tax return for the previous tax year. By combining some retirement plan strategies to control your future financial situation, these strategies can also help you reduce future taxable income.