Friday, November 30, 2012

Simple Savings: Be Prepared for Taxes

Be Prepared For Taxes

Being married to an accountant, I have learned something that really is a good idea to consider.  When the fall rolls around, take some time to prepare your taxes BEFORE the end of the year.  When I say prepare, I mean to estimate. 

First, figure out how much you have made in your job, investments, etc.

Second, figure out what tax deductions you will be able to have.  (childcare credit, medical, donations, etc.)

Third, estimate about how much you think you will have to pay. 

If you find that you are going to have to pay a lot of taxes, see if there are things you can do to reduce it NOW.  Do you have the financial flexibility to contribute to an IRA, SRA, or a retirement plan through your local bank if you are self-employed (SEP IRA).  Do you have things you can donate that you were planning on getting rid of anyway?  Do it before the end of the year.  Do you work at home and need a new computer that you use only for work?  Consider purchasing it before the end of the year and lower your taxes.  If you estimate in the late fall, then you have time to save the money you need to contribute or donate or whatever else you find that may help your tax situation.   

A word of caution:  Don't buy things you don't need or don't honestly use for your business just for a tax write off.  When taking a write off, you only can subtract the percent that you would pay on taxes in most cases, so be wise.  If you are in the 15 percent tax bracket, for example, you save 15 dollars on taxes for every 100 dollars you spend.  If you don't have the money to contribute to a retirement plan or don't need a new computer for work, you may be better off just paying the 15 dollars for taxes instead of spending money you don't have and going into debt.  If you can't afford it, don't do it.  You are much better off just paying the taxes.

The most important things is being honest in your financial dealings, especially when you are finding ways to keep more of your hard earned money for yourself. 

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