The start of a new year marks several occasions, including a brand new tax year. By implementing certain strategies at the beginning of the year, you can potentially lower your tax bill next year. To help ensure you are financially on the right road, here are some tips that you can use.
Prepare Files For New Tax Records
A new year means new financial documents you need to keep track of so you can file taxes next year. To ensure that you keep all of your financial records, create a space now for the documents. You do not have to worry about setting up an extensive and complex system now.
A few manila folders in a file cabinet are fine to use. You an also setup a folder on your computer to store digital records. Remember to ensure that digital files are saved in cloud storage so that you do not lose them if something happens to your computer.
Re-Assess Your Employer Withholding Amounts
Any changes to your household could have an impact to your future taxes. For instance, if you had a baby over the past year, you now have one more dependent you can claim on your taxes. If you have had any changes that can affect your taxes, take some time to re-assess your current withholding amounts with your employer.
Evaluate Your Retirement Contributions
The start of the new year is a good time to establish automatic savings deposits to your retirement accounts so that you can ensure that you reach your maximum contributions. You can find out the maximum allowed contributions by contacting the Internal Revenue Service, or IRS.
You should also evaluate whether or not switching from a traditional retirement account to a Roth account would be best for your financial situation. A Roth has many advantages, including allowing your heirs to inherit the account without having to pay taxes on it.
There are rules to whether or not you can convert to a Roth. For instance, if your income exceeds a certain amount, you are ineligible to convert. In 2015, the income limit for a married couple filing jointly was $193,000.
Consult with your tax planning adviser to learn other ways that you can start off the year on the right foot. Your adviser can also help you pinpoint any mistakes made in the previous years so that you can take action to avoid them in the future. For more information about what you can do to improve your future tax strategy, consider contacting a professional like those at Balkcom Pearsall & Parrish CPA's PA.