Here are some tips on how to optimize on your tax savings for 2016 and when to act on the same.
Many people often do not think about their financial planning and savings requirements till the time comes around to paying taxes. By then it is often too late to make your investments help you in saving taxes. In this Article, you will find quite a few tips to consider which one needs to consider and take action now before it is too late to save and all your precious earnings seem to be taken away as tax payments.
- Opt for all tax advantages available
The IRS offers several ways to shelter your money from being taxed. It is necessary to take advantage of all opportunities offered like 401 (k) plans, retirement accounts and IRAs. However, there are other ways of making savings on tax payments as well. For instance, pretax money can be put aside for child care or medical expenses, and this can be withdrawn to make payments through the year which will not be taxed. If you have health insurance plans that are highly deductible you can opt for health savings accounts. That allows your contributions to be saved from taxes as well as any earnings that you get from them.
- Coverage for kids
If you save for the future of your children you will be able to gain tax benefits as well. There are plans like Coverdell Education Savings Accounts which allow money to be saved and tax payments are deferred on these contributions. Even the withdrawals are tax free which can be used to cover educational expenses for children.
- Index investments for fund holdings
If you are investing in mutual funds or ETFs, you might want to think twice before getting an active manager for the funds. This tends to make them less efficient in saving on taxes. ETFs, on the other hand, track the indexes and the structure is such that minimal taxes are levied on the earnings. That makes them ideal for investing and saving on taxes at the same time.
- Long holding of stocks
If you have stocks in your investment portfolio, you might want to refrain from making quick moves and cutting profits which will attract more taxes. Long term capital gains tend to be less costly on earnings from stocks. You need to hold onto stocks for longer than a year to get the long term capital gain treatment on your stocks.
- Planning early
It is best that you sit down to invest your taxable income and how you can reduce the same. If you sit down before the tax payments are due, there might be little you can do to avoid the impact of taxes on your earnings or investments which are usually taken into consideration from the previous year. Hence, this is the right time to look at your portfolio and the tax savings schemes that are available. You could even get your finances looked at by a tax consultant and get their advice to reduce your tax burden. For more information on tax savings, refer to the article mentioned In this Link – The Best Tax Free Investment in USA.