Tax time (April 15th) is still a few months away, but it’ll roll around before you know it. And while it might seem early for tax talk, is there ever a bad time to save money?
Did you know that smart planning at the beginning of the year (aka NOW!) can lead to you paying Uncle Sam less, come April? Well, it’s true. Just follow these tips:
Save now by looking ahead
Contribute to retirement and savings plans early and often. Plans such as a 401(k), an IRA, and a 403(b) allow for not just a tax-deferred pot of earnings that multiplies over the years, but these options also reduce the amount of taxable income for the current year. The deadline for investing in these workplace-based retirement programs is the 31st of December, but if you’ve missed that deadline for 2014, you can still make contributions to a traditional IRA until April 15th of 2015.
Give and get back
Charitable donations are tax-exempt, so make sure you gather ALL your donation receipts from 2014. This way, you have evidence to support you not paying taxes on the charitable donations you made during the previous year.
Make sure you’re covered
I’m not just talking about life insurance here. The Affordable Care Act (Obamacare) means you pay a tax penalty every month you don’t have the minimum health insurance coverage required by law. And your life insurance policy can also provide tax benefits, because if you have a policy with a cash value rider, any growth in that cash value is tax-deferred. Even if you take out a loan against your policy, that loan amount is tax-free. Lastly—and maybe most importantly—your beneficiaries generally won’t pay federal income taxes on death benefits, whether the payout is $10,000 or $10 million.