How to Prepare Now for Your 2016 Taxes
Tax season is behind us, and unless you have filed an extension, hopefully you were able to get your return in before the deadline. While it is a relief to have our 2015 taxes behind us, it is never too early to start preparing for 2016. Remember, the more you prepare now,the less stressful it will be next winter.
Here are some ways to prepare for filing your 2016 tax return:
Organize your Records:
Keeping all your tax-related paperwork in one place can significantly reduce your headaches trying to gather up everything next year.
Keep all your papers in one dedicated file box labeled “2016 taxes”; you will be thankful you took this small step next year at tax time. In addition, you may also want to consider making electronic copies of each important form and receipt. There are several apps available today that you can put on your smartphone so you can take photos of your papers and file them electronically.
Review your Tax Withholding:
Examine the size of your tax return and decide if you would like it to be larger, smaller, or to stay roughly the same next year.
When it comes to withholding, there are two schools of thought:
1.Some people complain that getting a refund is the same as giving the IRS an “interest free loan.” Therefore, they prefer to withhold less and receive more
income now.
2.Others find it difficult to save larger amounts of money,so they appreciate receiving a sizable refund during tax season.
Whichever camp you are in, adjust your tax withholding accordingly.
Decide if you will Deduct State Income Taxes or Sales Taxes:
The IRS now gives taxpayers the option of deducting income or sales taxes on the state level. If you live in a state with no income tax, this of course is a no-brainer. If your state does have income tax, however, you may still want to deduct sales tax if you plan to make some larger purchases this year. If so, start saving all your receipts now in your file box and electronically.Make sure you Have Qualifying Health Insurance:The penalty for not having health insurance is set to increase again for tax year 2016. This year, the penalty will be $695per adult and $347.50 per child or 2.5% of your household income up to a maximum of$2085 per family. If you do not already have health insurance, be sure to acquire it this year.
Contribute more to your Retirement Account:
Contributions to an IRA, 401K or other type of retirement account are tax-deferred (for most types of plans). The more you contribute now, the lower your taxable income will be; and in some cases, increased contributions can put you into a lower tax bracket, saving you
even more money.
Speak with a Local Tax Professional:
There are numerous tax strategies that can benefit you, depending on your specific circumstances. Rather than trying to interpret the
70,000+ page Internal Revenue Code (IRC) on your own, it is best to speak with a CPA to discuss what is best for you. The small investment you make in consulting a tax professional can pay for itself many times over in the tax savings you may realize.