Welcome to North Shore Bank's, In Your Interest podcast. With tax season in full swing, here are 10 year round tax saving strategies that you can use to make tax time less taxing. Number one, be organized. Having your records in a usable manner will make preparing your return easier and may help you with deductions you might have forgotten about.
Consider using a software program or online money management suite to help you stay organized. You should also keep a file of receipts and other records you know you will need. Number two, be sure to contribute to your 401k plan. By deferring wages into your plan, you will keep your taxable income lower, save money for retirement, enjoy benefits of tax deferred compounding of earnings, and probably get some form of match from your employer.
Number three, use proper withholding and estimated payments. While getting a large tax refund is nice, it's usually not too smart to let the government hold your money until they refund your overpayment. There are rules about how much you must have withheld or paid in estimates. To avoid IRS penalties, you may want to consult with your accountant to make sure you are properly covered.
Number four, consider giving appreciated stocks to charities. If you plan to make significant contributions to a charity and have some stocks you are holding at a gain, you may want to consider giving the stock instead of cash. You can get a charitable contribution for your fair market value of the gift and not have to pay tax on the capital gain.
Please note that there are some rules that apply, so you should consult your advisor. Number 5. Contribute to your IRA early. The earlier you contribute, the sooner the earnings become tax deferred. Number six, manage your itemized deductions. If your level of itemized deductions is close to what is needed to use them, consider bunching deductions every other year.
Number seven, use tax advantaged borrowing. Not all interest you pay is tax deductible. The interest paid on your mortgage and home equity loans gets treated better than interest paid on credit cards. Also, there may be some tax deduction benefits to margin loan interest. Number eight, be careful of mutual fund taxation.
Even though mutual funds pay no income taxes, you as a shareholder must report all distributions you receive. Mutual funds must distribute dividends, interest, and net capital gains. If your fund has experienced much turnover within the portfolio, there may be capital gain distributions regardless of whether the fund's value has increased or fallen.
Number nine, consider tax exempt bonds. The interest on bonds issued by state and municipal entities is exempt from federal taxation. And number ten, get help early if you have any complications. If you have stock options, think you may be subject to the alternative minimum tax, or are expecting any unusual tax items, talk to your advisor early in the year.
Proper planning may help you avoid unpleasant surprises next tax season. Remember, we are here to help you manage your financial life. Call or stop in to see us, or visit us online at northshorebank.com to learn about free helpful tools and set up a time to meet one on one with an expert. Thank you for listening to this episode of the North Shore Bank In Your Interest podcast.
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