This post is featured on behalf of Adam Pepka.
It is really never too early to start preparing yourself for tax season, especially if year after year you find yourself waiting until the last minute. Plus, depending on what type of job you have, preparing early for tax season might actually be completely necessary.
For instance, if you work for a big company that automatically withdraws money for taxes from your paycheck each pay period, then you don’t actually have to do all that much (though you still might owe at the end of the year, depending on how much was taken from your check). But if you work for yourself as a freelance professional and get paid in full every paycheck, taking the time to figure out how much to save from every pay check (because you will owe in taxes come April) is of paramount importance. Not only does saving money throughout the year help, but knowing the tips and tricks of how to actually save money while doing your taxes is a whole different ballgame.
Here are some quick and easy tips on how you can be saving money this upcoming tax season.
1. Check on Your Tax Withholdings to Squeeze Out Some More Money
Remember when you got hired and you filled out that bit about how many dependents you had? Well, whatever number you wrote down will have a major influence on how much money you will owe or receive at the end of the year. Confused? The more people you claim as dependents, the less taxes will be withheld and the more money you will receive per paycheck. Basically, this is meant to help you with monthly expenses for those dependents. While yes, you do get taxed less per check, this means that you might owe money at the end of the year if you were not taxed enough per pay period.
On the flip side, if you claim just yourself as a dependent, you will be taxed more heavily per paycheck (because logically one person has fewer expenses than four people), but Uncle Sam will probably owe you a pretty nice tax refund at the end of the year. Think of it as giving the country an interest-free loan until they have to pay it up come April.
Basically, you have to decide how you want your money. Do you want more up front with each pay check or do you want a nice fat check at the end of the tax season? Obviously, if you can swing it, getting a nice check at the end of the year is the best bet, because you can use that “extra” money to finally pay off your credit card, take a vacation or put it in your savings account for a rainy day, especially if you are prone to spending your money versus saving it.
2. Check into Whether or Not You Qualify for Tax Credits
Depending on your income, you might qualify for the Earned Income Tax Credit (EITC). The EITC is a refundable federal income tax credit for a working individual with a low or a moderate income. Apparently, there are a lot of people out there who qualify, but don’t actually sign up for it – most likely, because they do not even know it exists. There are a few steps you have to take to get signed up, but once you are, it is a great way to save some money for those surprise expenses that dry out your bank account – you know, like car engine troubles or medical bills.
Also, be sure that you don’t owe any outstanding tax bills. If you find you’re in debt with Uncle Sam, it’s crucial that you get advice and legal help from a taxpayer advocate service; tackling tax debt is a whole other ball game, and you’ll need all the guidance you can get.
3. Use Your Tax Refund for Good
Now that you have a nice chunk of change at the end of the tax period, you should really put it into your savings account. Now, we know that saving all of it can be tough, but you should at least set a goal for yourself to save (at the very least) half of your tax refund. Plus, if you are wise as to where you put it, your tax refund could end up growing in size. For instance, if you are a savvy investor, you can invest your money and let it slowly build up while you aren’t even paying attention. Or you can put it into your retirement and enjoy that money in the future when you are no longer working. You worked hard for that money, after all, so don’t rip yourself off by wasting it on a new pair of shoes that you will forget about in a couple months.
Don’t wait until the last minute to get your taxes done! You’ll breathe easier knowing you’ve paid the right amount and that it’s over with… until next year.