Every year at tax time you will find people stressed out by all the work and effort required to prepare their taxes. There are piles of receipts to sort through, forms that are not easily understood and ever-changing tax codes that you must interpret. After a long week of work, the last thing you want to do in the spring is to work on preparing your return.
With some advance planning and carefully considered strategies, though, you can make tax time a much better experience. For the best tax refund outcome, it’s best to look at your tax situation before the year ends. A proactive approach allows you to plan your deductions and look at different ways to increase your tax refund.
Run Scenarios Before the Year Ends
One of the best ways to get on top of your tax planning is to use a free tax calculator to estimate the taxes you owe and the refund you will be receiving. A tax calculator will let you create a quick model of your tax return by asking you pertinent questions in an easy to use format. Once you have loaded your financial information you will be able to see how much tax you might owe and how big your refund could be. This is a great tool for analyzing your current situation and running what if scenarios that let you change deductions and strategies to see how much money you would save.
Bunch Your Deductions
Before year end you should carefully review your deductions and see if you will itemize or take the standard deduction. If itemizing will save you money you may want to use the tax calculator to see how much you could benefit from accelerating your deductions. For instance, you could pay property taxes or a mortgage payment in advance. It’s also possible to bunch your elective medical or dental expenses and charitable contributions so that they appear in the current year. Some people use this strategy to itemize one year and take the standard deduction the next.
Keep Careful Track of All Your Miles
One of the best ways you can save money on your taxes is to keep careful track of all the miles you drive for the year. It’s great to keep a spiral notebook in the car to record mileage or use a mileage tracking app. Business mileage can add up and the generous per mile deduction can easily translate to an increased tax refund. If you are self-employed you get to take the mileage expense as a deduction against your income on Schedule C instead of having to itemize the miles on Schedule A. You can also deduct mileage for traveling to interviews, going to medical appointments or driving to charities where you volunteer.
Everyone works hard for their money and wants to protect what they have earned. By using a tax calculator and doing tax planning before the end of the year, you will be able to lower your tax obligation and maximize your upcoming tax refund.