It is that time of year again. To tackle taxes off of your to do list, there are helpful tactics out there. Even if this is a routine process each year for you, There are new tips each year. Maybe you are looking to save more. There is always more you can do when preparing your taxes this year.
You may first turn to the internet which if you google taxes, automatically the ads start to pop up for systems that will do your taxes for you for money. The number one system is TurboTax, but the list goes on and on. There are also local businesses that can provide you tax service as well.
The U.S. Tax system is complex. About 3.8 million words make up the tax code, but luckily we don’t need to read them all. However, the average American spends 27 hours each year preparing tax returns.
Online Filing Changes the Playing Field
So where do you start? Well the best piece of advice out there is to do your taxes online. It is easier, faster, and you get your refund sooner. It is inexpensive, and there are even free options as well. Filing electronically just makes sense for federal and state forms.
The IRS has a free file program where 70% of qualified taxpayers (less than $64,000 adjusted gross income) can obtain online tax preparation for free. Once you find out if you are qualified, then you find software like TurboTax (Intuit) and H&R Block. The process from then on is pretty intuitive with the programs. There are customer service agents to help as well, another benefit to using online software.
If you don’t qualify, using a paid online software is generally STILL less costly than using a actual tax preparer. It is not to say that working with another human would not be worth it because they could recommend strategies to save more. The internet, however, offers you plenty of literature on tax saving strategies. So if you are willing to take on the research, the internet is still the way to go.
The Big Things That Matter
Taxes should not be something that you do once a year and then you put out of your mind for the rest of the year. The actions you take during the years have an effect on your taxes.
The most important think you can do is invest sooner and then hold them for the long run. Short term investment holds are taxed differently than investments held long term. This is something that changes with the agenda of the government. President Trump has mentioned to lower the tax system for short term investments. It is important to keep up with current tax law.
If you are savy with your investments, another piece of advice is to sell off investments that are down to offset the money you make on the winning stock. It cancels out. If the loss exceeds the winners, you can offset ordinary income up to 3000 dollars.
One important question to ask yourself is if you are invested in a tax advantaged retirement account. A tradition account will have you pay taxes on what you make. A 401 (k) or IRA are different because you won’t be required to pay for this short term gains, you just pay taxes when you withdraw before retirement.
How Taxes Relate to Residential Real Estate
You are required to pay a capital gains tax. This can effect the amount you make even when selling a property (when selling a primary residence, you are exempt to a certain amount). Most people aren’t affected, but it can happen where the property jumps in value.
Another way that tax savings relates to real estate is when you update or renovate your home. It is important to record every single home improvement. When you property value increases more than you are except for, your home improvements can offset the gains. Any improvement to your property is included such as the obvious finishing of a basement or remodeling a kitchen, but also putting up a fence and installing a backyard pool.
April 18th, 2017 is coming up faster than you think!