There is a saying, “There are only two guarantees in life — death and taxes.” Well, one of those guarantees is upon us. Hopefully you were able to get your taxes filed on time — or at least got your extension in timely!
If you are gritting your teeth or pulling out your hair because of what you owe, there are a couple simple ways to help next year. Now, I am NOT a CPA and do not claim to be. These are just a couple of simple things that we have used to help ourselves with our taxes, so I am passing the info along to you. Now, if you are self-employed, these may not help you at all, but might still be worth considering to help you avoid coming up with extra money for Uncle Sam next April.
401(k): This is not some disease. This is a simply put – a retirement plan. If your employer offers one and you are not participating — get on board! This is a GREAT way to save for your retirement AND get a tax break at the same time. Every single penny you contribute is done on a pre-tax basis. If you put in $200 a month, you won’t see your check go down by $200, but probably LESS than that because your tax liability also decreases.
In addition, if your employer offers any type of a matching contribution, you are basically throwing money away. For example, if your employer will match 25% of what you contribute, up to 4% of your pay, then you are basically tossing 1% of your annual salary straight out the window!
If you don’t know if your company has one, talk to your Human Resources Department Manager or Benefits Coordinator as there may be limits on when you can enroll (i.e. many only allow you to being participation on the 1st day of each quarter). But get on board!!
Exemptions: Now, just because you can claim 8 deductions, doesn’t mean you necessarily should. Yes, you bring home more with each paycheck, but if it results in you paying in each tax year, then you really should re-evaluate the number you claim on your W-4.
If you are claiming zero and still paying in, you actually can elect to have additional money withheld from your paycheck and paid in on your behalf, rather than trying to be a good boy or girl and keep that extra in your savings to offset your tax bill.
Now, on the flip side, if you get back a huge refund, you can actually increase your exemptions and bring home a little more each pay period so that you can spend it during the year rather than getting a refund back.
Charitable contributions: I was really surprised to see how much of an impact our charitable contributions made to our tax bill. It resulted in quite an increase in the amount of our refund. But, we don’t make the contributions for our taxes, we do it because it makes us feel good to help others who may be less fortunate than us, or to help with the research to fight horrific diseases. If you don’t help someone else out, you might want to try this out and get a double bonus during 2009.
Just take a good hard look at how things went for 2008 and if you are not pleased with your tax outcome, see what you can do about it so that you can actually SMILE on April 15, 2010.