How Spending 30 Minutes Now Can Save You $1,000 Next Spring
By Maryalene LaPonsie
With a headline like that, you might be prepared for a bait and switch. But we're serious here. You really can save up to $1,000 in only a half-hour. However, there is a catch. We have to talk about taxes. I know! Who wants to talk about taxes in September? Not me, that's for sure.
While tax planning isn't anyone's idea of fun, it doesn't have to be long, difficult or painful. In the amount of time it would take to find out if the family on "House Hunters" is going to pick the perfect home or compromise for the obviously inferior property (hint: they always compromise), you could have done something to ensure you'll have an extra $1,000 next April. Here are six ways.
1. Find Deductions Hiding in Your Closets
The first way to put that half-hour to good use is by cleaning out your closets and taking the contents to your favorite thrift store for a tax deduction.
Set the timer for 30 minutes and go wild. Be ruthless. It's like "Supermarket Sweep," but you're cruising through your home rather than running through the grocery aisles.
Those skis Junior never used? Gone. The baby clothes from your 4-year-old? Outta here. The scrapbooking supplies that haven't seen the light of day in two years? Sayonara.
This strategy has a double benefit. Not only do you get a deduction that can lower your tax bill next year, you're also making space just in time for the rush of holiday gifts that will be arriving shortly.
2. Beef Up Your Retirement Savings
Another way to use those 30 minutes is to review your retirement accounts and see if you can afford to contribute a little more.
For 401(k) and 403(b) accounts through your workplace, you can contribute up to $17,500 this year, an amount that can be deducted from your taxable income. If you're 50 or older, you can contribute up to $23,000.
Even if you don't have an employer-sponsored retirement fund, you can contribute money to your own IRA and get the same tax benefits. IRA contributions for most workers are maxed out at $5,500 in 2014, with those 50 and older eligible for a deduction on up to $6,500 in contributions.
Depending on your tax bracket, you could save 30 cents in taxes for every dollar you contribute to an eligible fund. Remember, there are income caps for some of these deductions, and you get an immediate tax benefit only if you have a traditional 401(k), 403(b) or IRA. If you have a Roth account, you still get tax benefits, but not until after you retire.
3. Dump Your Stock Losses
If you have some stocks, grab a cup of coffee and spend 30 minutes reviewing your portfolio.
Are any perpetually underperforming? If so, now is a perfect time to dump them. You can deduct up to $3,000 in losses from your income, enough to conceivably save as much as $1,000 at tax time, depending on your bracket.
While you're reviewing your stocks, don't forget you can donate them to charities, too. Make a gift of some overachieving stock to your favorite 501(c)3 organization, and then you can take a deduction for its full value.
You avoid the capital gains tax by making a donation, potentially reduce your tax liability with the deduction and, because the organization is tax-exempt, it can cash in without paying taxes either. It's a win-win.
4. Max Out Your Health Savings Account
If you're one of the nearly 17.4 million people with an eligible high-deductible health insurance plan, you should definitely consider opening or adding to your health savings account.
HSAs let you meet your deductible, co-pay and coinsurance requirements using tax-free dollars. In 2014, you can contribute up to $3,300 to your HSA if you have single coverage or $6,550 for a family plan.
If you have the financial means, maximizing your HSA contributions each year can be an excellent way to reduce your tax liability. Unlike flexible spending accounts, which operate under a "use it or lose it" system (although you may be able to carry over $500 to the following year), money in an HSA will roll over each year, so you can build up a healthy savings account for medical emergencies.
5. Check in With a Pro
Actually meeting with a finance pro will probably take longer than 30 minutes, but you only need a half-hour to find someone and make an appointment.
Despite the fact that I feel confident managing my own money and savings, I recently sat down with an adviser for a financial checkup. I didn't go into the meeting expecting much but was surprised at the outcome. Having a fresh set of eyes looking at the numbers proved to be helpful in identifying new ways to save. It also gave me a shot of motivation to stay the course when it comes to sticking to my spending and saving goals.
Remember, some professionals might be more interested in making money than working in your best interest. However, if you can find the right adviser, they should be able to provide information and advice on how to minimize your tax liability, maximize investments and cut out unneeded expenses and fees. There are several ways to evaluate financial advisers.
6. Spend a Little Quality Time Online
Finally, if you don't feel inclined to meet with an adviser, at least spend 30 minutes looking for DIY ways to save money in advance of tax season.
Sure, this is shameless self-promotion, but we have an excellent knowledge base of information here, if I do say so myself. Search for "tax hacks 2014" for a collection of our articles from the past year, stories that will help you do everything from finding helpful tax apps to ferreting out those hard-to-find deductions and credits.
All the above suggestions can be done or initiated in about 30 minutes or less and may result in tax savings of up to $1,000 or more. You could try these strategies at any time in the next few months, but need I remind you that Halloween is practically here? Then, the winter holiday craziness is right behind.
Best get this done during the relative calm of the early fall. There will always be reruns of "House Hunters" to watch later. I promise.