It probably feels like you just filed your taxes a few weeks ago but with the year half way over July is not a bad time to start thinking about taxes and see where you might be able to make some financial improvements for next year. Did you get a big refund this year? Remember that the government doesn’t pay interest and that was your money to begin with. If you owed taxes and especially if you owed penalties you should also review your finances to avoid being penalized again this year.
Here are 4 tips on adjusting your finances to make taxes easier next year:
- Finish Filing - If you are one of the 13+ million people that filed for an extension this year, you have until October 16 to file your return. If there was money due you will incur penalties if you didn’t submit payment back in April.
- Adjust Withholdings - As mentioned earlier if you got a big refund you had too much of your income withheld by your employer and you should adjust your allowances on your W4. The same could be true if you owed and didn’t have enough withheld. You can check your year-to-date withholdings to see where you’re at for this year and you still have plenty of time to make up for it either way.
- Charity - If you are over 70 1/2 you can transfer up to $100,000 from an IRA to a qualified charity without it qualifying as income and it will count toward your required minimum distribution for the year. The transfer is tax free. Unfortunately you can’t also take that gift as a tax deduction so it works better as an income reduction strategy. Also, remember that if you donate more than $250 to any charity you need to have an acknowledgement or receipt of the gift and you can’t deduct the value of anything you got in return like a silent auction purchase or dinner tickets. You can only deduct the amount (if any) above the estimated value of the item in question and the receipt should show that.
- Rental Income - If you own your home and you live there more than half of the year (owner occupied) you can rent out your property for 14 days a year and keep the rent as income tax-free. You don’t even have to report it. This could be great if you use a service like Airbnb, VRBO, or HomeAway to rent your home out over long weekends, especially if your city has a peak season with strong rates or well-attended events that increase demand during those specific time periods. If you rent your home out for 15 days or more you must include all rent as income however so this only applies if you rent it for two weeks or less and no a day more.
- Retirement Accounts - If you haven’t already started putting money into a401K or IRA this year remember that the limits are $18,000 and $5,500 respectively for those under 50 with an additional $6,000 allowed for 401K contributions for workers age 50 and older who can also contribute $1,000 extra to an IRA. If you aren’t on track to reach these limits this year consider increasing your contributions for the next several months.