This was originally published on Monday, December 21, 2015, in the Pacific Daily News. Click here to subscribe to the PDN.
It’s only December and we are talking taxes. Taking time to review your year can help you when tax time rolls around. Reviewing your information that affects your taxes now will save you a lot of stress in April. It also gives you time to make changes that may affect your finances for next year. Be expecting your W-2 by mid to late January.
Review last year’s tax return. Did you get a large tax return last year? A large tax return is an indication that you may be withholding too much of your income. Many people look for a large refund at the end of the year and use this as an opportunity to save money. In fact you can put that money into a savings account and earn the interest. If you had to pay the government at the end of the year, you are underpaying your taxes. Try to balance your W-2 so that you are almost breaking even on the amount of taxes you pay.
Retirement account. Retirement funds are an excellent place to store your income. Most retirement plans tax the money when you with draw from it. When you place more of your income into your retirement plan you can defer the tax till a later time. Adding more to your retirement is never a bad idea.
Deferring taxes. This is a legal way that lets you pay taxes tomorrow on what you earned today. This lets you hold on to the money you make a little bit longer. You can invest the money, pay off debt, improve your home, or build your emergency fund. You can use that hard-earned money and make it work for you now. You can place your money in certain types of retirement accounts or investments or into real estate. You should consult a tax accountant to help you defer your taxes.
Itemizing. Itemizing on your taxes can work for most. Itemizing takes a little more time, but for some it can really pay off. Prepare your taxes using the standard and itemized forms and compare which can save you the most.
Investment losses. Did any of your financial investments lose money this year? These losses can be used to help offset any capital gains you had this year. Your financial adviser should be able to direct you when claiming it during tax time.
Charity. It is the season for giving. If you gave to charities this year be sure to claim it on your taxes. Charity can be monetary donations or goods. If you donated goods such as clothing, toys, furniture, or any kind of household goods, ensure that you receive a receipt. At tax time you can claim it to lower your tax bill.
Taking time now to review your tax information will give you a preview on how your tax bill may look in April. Making small tweaks now may save you a significant amount of money in the end. If you come to the conclusion that there is not a lot of changes to be made, take comfort in the fact that you are almost done filing your taxes. When your W-2 arrives, it’s a matter of making small adjustments and you can file your taxes early. There will be no waiting and no stress. What a way to start the New Year.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at email@example.com and read past columns at the Money Matters blog at moneymattersguam.wordpress.com.