The tax year is pretty much a wrap. There’s not too much individual taxpayers can do to change the outcome. But there are a variety of steps you can take this year that will affect how your next year’s tax year plays out.
Review Tax Payments
If you customarily get a healthy tax refund, you may want to rethink how much is being withheld from your pay. Your withholding amount is based on the Form W-4 you filed with your employer. If you file a new W-4 that results in lower withholding, your take-home pay will increase. But don’t go overboard. You’ll want to make sure you’re having enough withheld to avoid underpayment penalties. Similarly, self-employed individuals and other taxpayers who make quarterly estimated tax payments should be careful to pay the appropriate amounts in a timely manner.
Make the Most of Tax-favored Accounts
Contribute as much as possible (up to the federal limit) to your 401(k), 403(b), 457, individual retirement account (IRA), or other retirement plan. Also, take full advantage of any other tax-favored accounts you’re eligible for, such as a health savings account (HSA) or a flexible spending account (FSA). Managed properly, these accounts can provide considerable tax savings.
Nurture Your Future
If you plan to change jobs and take a distribution from your employer’s tax-deferred retirement plan, be careful. It’s usually best to have your plan trustee directly transfer the funds to the trustee of your new employer’s qualified plan or to the institution that has your IRA. Although you could request a cash distribution and do the rollover yourself, required income-tax withholding can complicate the transaction. If you make a mistake and don’t roll over the full amount of the taxable distribution within 60 days, you’ll owe income taxes — and perhaps a 10% early withdrawal penalty as well.
For more help with individual or business taxes, connect with Burgess & Associates today. Our team can help you with all your tax issues, large and small. Request a consultation through our website today or give us a call at 757-955-8473 to get started.