With the April filing deadline well behind us, your taxes may not be occupying quite as much brain space as they did around this time last month. But that doesn't mean you should stop thinking about taxes -- specifically, ways to keep yours to a minimum. In fact, here are a few moves you'll want to make right away.
1. Adjust your withholding
If you got a large tax refund this year, you were probably a pretty happy camper. But here's the thing about tax refunds: While that lump sum of money might seem like a windfall, getting cash back from the IRS actually means that you loaned the government a portion of your earnings for absolutely nothing in return.
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Rather than risk a repeat this year, take a look at your W-4 and adjust your withholding so that you're having less tax taken out of each paycheck up front. This way, you won't have to wait as long to get your hands on that money; it'll be yours to invest and enjoy whatever growth it achieves.
If you're really worried that altering your withholding will have the opposite result next year -- that you'll owe money come tax season -- you can always take the extra money you get in each paycheck and stick it directly into a savings account. If it turns out your W-4 adjustment results in an underpayment, then you'll have the cash on hand to give the IRS what you owe. And if you don't end up owing money after adjusting your withholding, that money will be yours to keep, and you'll have earned a touch of interest on it to boot.
2. Ramp up your retirement plan contributions
Putting money away for retirement is one of the smartest financial moves you can make in general; but it can also benefit you from a tax perspective. Any time you contribute to a 401(k), your money goes in on a pre-tax basis, which means you get to lower your tax bill up front. Similarly, if you fund a traditional IRA, the amount you put in will be tax-deductible.
Now if you open a Roth retirement account, your contribution itself won't be tax-free. But once that account is funded, you'll never pay taxes on the earnings your investments generate. Even if you don't get an initial tax break, contributing to a Roth is one of the easiest ways to save money on taxes on a long-term basis.
3. Start using your FSA balance
If you put money into a flexible spending account (FSA) during your company's open enrollment period but haven't really touched your account since, now's the time to review your balance and start mapping out your healthcare spending for the remainder of the year. Though FSAs save you money by letting you use pre-tax dollars to pay for necessary medical expenses, the downside is that if you don't deplete your balance by the time your plan year comes to a close, you'll forfeit your remainder.
Now you may be thinking that there's still plenty of time between now and the end of the year to use that money, but it's easy enough to let your account balance -- and your health -- fall by the wayside. After all, no one wants to schedule medical stuff during the summer, but before you know it, it'll be fall, and then the holiday season will kick off, and without even realizing it, you'll have blown your chance to use up your balance. Rather than procrastinate, see what healthcare items you need to address and start scheduling them now.
4. Establish a reliable record-keeping system
You may not put much thought into the bills you pay and the money you spend, but some of it could serve as a sizable tax write-off. For example, if you're looking for a new job within your field, it pays to keep a record of what you spend traveling to interviews. If you're paying a bundle for healthcare, you should retain all of your receipts. And if you're kind enough to donate money to your neighbor's kid's school fundraiser or your cousin's charity bikeathon, you should absolutely document those payments as well.
All of the aforementioned items -- job search costs, medical expenses, and charitable contributions -- can serve as deductions on your upcoming tax return, but you'll need solid records to know how much to claim. That's why it pays to set up a physical or electronic filing system if you don't have one already.
Just because you're no longer focused on taxes doesn't mean you should forget about them entirely. A few smart moves today could shave hundreds, or even thousands, off your upcoming tax bill -- and that's something to think about.
