It's Never Never Too Early to Start Planning for Next Year's Taxes

With tax season behind us, it's never too early to start planning for next year's taxes. By being proactive and implementing strategic tax-saving techniques, you can potentially reduce your tax bill and keep more money in your pocket.

Strategies To Review Before Year-End

Here are several practical ways to think ahead instead of waiting until filing season.

• Maximize your retirement contributions: One of the most effective ways to lower your taxable income is by contributing to retirement accounts such as a 401(k), IRA, or HSA. These contributions are often tax-deductible, which means they reduce your taxable income and may lower your overall tax bill. Review your contribution limits and strive to maximize them where appropriate, especially if employer matching is available.
• Optimize your tax withholding: Review your W-4 elections with your employer to make sure you are not overpaying or underpaying throughout the year. Overpaying creates a larger refund, but it also means giving the government an interest-free loan. Underpaying can lead to penalties and interest.
• Explore tax credits: Tax credits are a dollar-for-dollar reduction in your tax liability and can result in meaningful savings. Depending on your situation, credits such as the Earned Income Tax Credit, Child Tax Credit, or Education Tax Credits may be worth reviewing.
• Consider tax-advantaged savings accounts: Health Savings Accounts, Flexible Spending Accounts, and 529 College Savings Plans can all offer tax benefits. HSAs and FSAs may reduce taxable income for qualified expenses, and 529 plans offer tax-deferred growth and tax-free withdrawals for qualified education expenses. Some states may also provide deductions for 529 contributions.
• Plan capital gains and losses carefully: If you own taxable investments, the timing of gains and losses may have a direct impact on your tax picture. Selling investments with losses can offset gains, while holding appreciated assets longer may qualify them for lower long-term capital gains rates.

Saving money on taxes usually requires proactive planning and awareness of available strategies. Don’t wait until the next filing deadline to start thinking about the current tax year. By maximizing retirement contributions, adjusting withholding, reviewing credits, using tax-advantaged accounts, and planning gains and losses, you may be able to lower your tax bill and keep more flexibility in your overall plan.