How to Prep for Next Year’s Tax Season to Keep More Cash in Your Pocket
Tax time doesn’t have to be a source of stress—especially when you prepare early! With next year’s tax season on the horizon, now is the perfect opportunity to take actionable steps to save money and make the filing process smoother. By following a strategic approach, you’ll not only lighten the burden of tax prep but also maximize your potential refunds. Let’s dive into some key strategies that can help you make the most out of your next tax season!
Review Your Payment or Refund
Understanding your financial result from this year’s tax filing is crucial. Did you end up owing money, or did you get a sizable refund? Use this information to your advantage!
- If you owed money, check if you incurred penalties for underpayment. If so, consider increasing your withholding, or make quarterly estimated tax payments to avoid being in the same situation next year.
- Had a hefty refund? That essentially means you’ve given the government an interest-free loan! Think about reducing your withholding to increase your take-home pay throughout the year. However, if you prefer to bolster your savings habit with a large refund, it’s important to pay attention to your expenditures.
One expert, Lisa Greene-Lewis, a CPA with TurboTax, emphasizes that significant life changes—like a new job, a new baby, or purchasing a home—should prompt you to revisit your withholding amount. TurboTax offers a free W-4 withholding calculator to help determine your ideal withholding.
Capitalize on Market Conditions
Are you keeping an eye on your investments? If the market has taken a dip, consider strategically assessing your investment portfolio:
- Unlock tax benefits by selling underperforming investments. This is a savvy tactic to realize losses that can offset capital gains.
- Instead of waiting until the last minute in April, you might benefit from making your IRA contributions early while prices are low. Investing at a lower price today could yield higher returns when the market rebounds.
Older Americans should take note: Beginning in 2025, those between the ages of 60 and 63 will have the chance to contribute more through a newly introduced supersized catch-up option.
Keep Track of Business Expenses
Do you own a business or work for one? It’s imperative to meticulously record business expenses throughout the year:
- As a business owner, finance experts urge you to keep track of business mileage—this can significantly affect your tax outcome.
- If you’re an employee, remember that unreimbursed business expenses are still non-deductible. Consider discussing reimbursements with your employer for essentials like uniforms, tools, or work meals.
Home Buyers and Sellers: Be Tax Savvy
With the spring homebuying season on the horizon, it’s wise to familiarize yourself with potential tax considerations associated with real estate transactions:
- Selling your home? Don’t forget to document improvements you’ve made—they can reduce your taxable gains when selling. If you’ve lived in your home for two out of the last five years, you can exclude up to $250,000 (or $500,000 for married couples) from your capital gains.
- Buying a new property? Make sure you know the state-specific rules regarding housing deductions. Federal mortgage interest deductions are capped at $750,000, which varies in other states.
Get Organized Early
The key to a smooth tax experience is early organization. Mark Richard Pon’s advice rings true: “To get organized for 2025 taxes, start in 2025—not in 2026.”
- Track any tax-deductible expenses on a spreadsheet or keep receipts in a dedicated folder. Common deductions include charitable contributions, medical expenses, and property taxes. Some medical costs are deductible based on state parameters, and knowing your limits can save you a ton.
- Educators and landlords, keep diligent records of expenses, including insurance, HOA fees, and utilities, throughout the year.
Familiarize Yourself with Tax Terminology
The world of taxes can seem daunting, yet understanding a few key terms will empower you throughout the filing process:
- Refund: Money returned from the government.
- Deduction: Reduces your taxable income—think student loan interest.
- Credit: Directly lowers what you owe—like the Earned Income Tax Credit.
- Rebate: A special type of refund.
By familiarizing yourself with these terms now, you’re positioning yourself for a successful experience next tax season.
Conclusion
Preparing for tax season doesn’t have to be an arduous task. With careful planning, organization, and a little bit of knowledge, you can significantly streamline the process. Take proactive steps today, and those dollars will continue to add up in your pocket tomorrow.
Looking for more personal finance tips? Follow along for more insights on how to make smarter financial choices all year round!
