Do you have a tax plan? The end of the year will be here before you know it, and after that tax season will be right behind.
If you want to reduce the stress and the cost of tax time, there are things you can do to get ready. Make a tax plan to include a few timely moves could save you thousands of dollars when end of tax year rolls around.
Make a Tax Plan Now to Save Money
Here are some simple things you can do to reduce your tax burden and ease the stress of doing your taxes.
1. Contribute to a Health Savings Account
If you have a health insurance policy with a high deductible, you can protect yourself and get triple tax benefits by pairing that policy with a health savings account, or HSA. There is still time to open an HSA, and opening one by the end the year can make you eligible for significant tax savings come April 15.
The money you contribute to a health savings account is tax deductible, so you get immediate tax savings. The money also grows tax-free, much like a retirement account. If you do not use the funds this year, the money will roll over to subsequent years, so you can use it as you need to.
The third big benefit of a health savings account is that the money you spend on qualified healthcare expenses comes out tax-free. That is triple the tax benefits — all the more reason to open an HSA before the end of the year.
2. Boost Your 401(k) Contribution
There is still time to boost your 401(k) contribution, and the end of the year is the perfect time to do it. Every extra dollar you put into your 401(k) is one less dollar you will have to pay taxes on, so the savings are immediate.
Boosting your 401(k) contribution now will also give you one less thing to worry about next year. Over time, the value of those extra contributions can compound, increasing your retirement readiness while giving you a big tax saving benefit.
3. Open an IRA
If you have not already done so, the end of the year is a great time to open an IRA. Whether you choose the immediate cost savings of a traditional IRA or the tax-free withdrawals of a Roth IRA, you can trim your tax bill while you save for retirement.
If you already have an IRA but have not yet made your yearly contribution, why not make it now? You will save money on taxes, boost your retirement savings and tax advantage of the power of compounding.
4. Donate to Charity
There are lots of worthy causes out there, and donating to your favorite charity will make you feel good. If you itemize your deductions, that charitable contribution could also lower your tax bill, so now is the perfect time to get started.
Be sure to keep your receipts with your tax records so you will have backup if the IRS questions the amounts. If you donate tangible items like furniture or clothing, make sure you get a receipt from the charity, and that the receipt shows the value of your contribution and the date it was made.
Nothing can make tax time completely painless, especially if you owe money to the IRS. Even so, the four tax-saving strategies outlined above could make tax time less taxing, so you will have one less thing to worry about when April 15 rolls around.