Millions of taxpayers waited until the last minute before April 15 to file their tax returns, and many people don't even want to think about taxes again until next April rolls around. Given how complicated tax preparation has become, even the notion of tax planning earlier in the year is enough to make many Americans break out in a cold sweat. But given the importance of taxes in your financial life, you can't afford not to plan for your taxes throughout the year. Let's take a closer look at why planning your 2014 taxes is especially important right now, especially if you want to take maximum advantage of strategies that could help cut your tax bill substantially.
Why now is the right time to take care of tax business
Taxes play a role in just about every aspect of financial life. If you ignore taxes until the last minute, you'll inevitably leave some tax savings on the table. If you plan in advance, however, you can avoid unnecessary taxes and find unexpected savings.
In simplest terms, there's little chance that you'll effectively control your tax liability if you aren't even aware of the issues involved over the course of the year. Consider:
- If you don't have the right amount of tax withheld from your paycheck, you could be giving Uncle Sam an interest-free loan -- or you could put yourself in line for paying a tax penalty.
- Many credits and deductions are available for expenses that you incur throughout the course of the year, but in order to produce necessary documentation and other supporting materials so that you can actually claim those credits and deductions, you have to know that they exist and know what their requirements are.
- With investments, decisions that you make can have critical implications on your taxes, with big differences in your tax liability resulting from the course you choose.
By contrast, being aware of tax issues now will give you a much better chance to take action throughout the year to find more tax savings and produce less tax liability. With so many tax benefits available, attentive taxpayers can truly make a big dent in their overall tax bill just by taking some of the simple steps we describe in more detail later in this report.
Dealing with tax law changes
Most importantly, you can always count on changing tax laws to make things more complicated. For instance, in 2013, major tax changes took effect, making it all the more important to avoid what turned out to be a big increase in what many people had to pay this tax season.
Nobody wants to pay more in taxes than they have to. In order to cut your tax bill, though, it pays not to wait until the last minute to start working on your taxes. As hard as it might seem, thinking about next year's taxes now could be the best tax planning move you'll ever make.
Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.