3 Things You Should Do After You File Your Tax Return
You don't have to spend a huge amount of time planning out the tax implications of your finances for a tax season that won't start for another nine months. But by doing a few simple things, you can get a head start on setting yourself up for a much calmer and less hectic experience once 2016 rolls around. Below, we'll discuss three things that are smart to do right now.
1. Get Your Withholding Figured Out
It's next to impossible to have exactly the right amount of money taken out of your check, to leave you with a zero balance on your tax return. Most people either owe small amounts or get refunds back from the Internal Revenue Service, having had more money than necessary withheld from their paychecks over the course of the year. In some cases, though, people have far too little money taken out of their pay, and that can lead to costly penalties for not having taken steps earlier in the year to get it right.
A big refund might seem nice, but in reality, it's just an interest-free loan that you give to the IRS with money you could have collected throughout the year. By filing a new Form W-4 with your employer, you can have your withholding adjusted to give you more take-home pay throughout the year, giving you access to your money sooner. Conversely, you can also file a W-4 to have more money withheld from your pay if you had to pay penalties for the 2014 tax year and want to avoid them next year.
2. Set the Stage for Claiming Valuable Tax Breaks
As you've probably noticed in preparing your 2014 return, there are many tax deductions and credits that you might be able to use to reduce your tax bill. In most cases, though, you'll have to be able to prove that you're eligible for those tax breaks, either by meeting documentation requirements or simply by keeping good records.
Many people scurry to put together the necessary supporting documents when they prepare their returns, digging through a year's worth of financial statements and other papers. Now that the tax credits and deductions you qualify for are fresh in your mind, take the opportunity to think about collecting needed documents and paperwork throughout the year, keeping them in a central location and making tax preparation much easier next time around.
3. Get Smarter About Your Investments
Tax rules change from year to year, but one thing that stays the same is that the decisions you make with your investments can have dramatic impacts on your taxes. Just selling a stock at a gain or buying a dividend-paying investment in a taxable account can produce a bigger tax bill than you'd expected.
Often, you can use strategies to keep the tax impact of your investments as small as possible. Individual retirement accounts, 401(k)s, and other tax-favored accounts are available to help you save for retirement, while 529 plans for college savings and health savings accounts for medical expenses fulfill similar functions for other financial needs. The sooner you look into the options you have to take advantage of these tax provisions, the more you'll save at tax time every year.
Obviously, with the majority of 2015 still ahead of you, you won't be able to predict your tax liability exactly, and so your tax planning will be imperfect at best even if you do it now while it's fresh in your mind. Nevertheless, by getting you at least into the right ballpark when it comes to your 2015 taxes, you'll be in much better shape to handle things once next April rolls around.
Motley Fool contributor Dan Caplinger can't help himself; he plans his taxes throughout the year. You can follow him on Twitter @DanCaplinger or on Google+. Check out our free report on one great stock to buy for 2015 and beyond.