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Preparing for taxes year round

This time of year many people are looking forward to the holidays and starting to make plans. Accordingly, it is not likely that most are thinking about the taxes returns they will file come next spring. Perhaps they should be though. Taking certain steps now could make for a better outcome on the upcoming return.

The first thing a filer can do is be aware of the tax credits that they may be able to take advantage of. There are many different tax credits available including:

  • Residential energy credits.
  • Child and dependent care credits.
  • Earned income tax credit.

Taking this approach could greatly reduce the amount of taxes you must pay.

Second, you can reduce the income you are taxed on by contributing, pre-tax to a 401(k) plan or health savings account. Where HSAs are concerned, the amount in the account can grow, free from federal taxation and when distributions for qualified health expenses are taken, they too are tax free.

Last, it is not uncommon for individuals this time of year to be charitable in nature. As it turns out however, making a donation to a charitable organization that has a “501(c)(3)” status can be beneficial to the person make the contribute as well. This is because up to $6,200 for individuals and $12,400 for married couples filing jointly, is tax deductible.

When pursing any of these approaches as a way to position yourself better where income taxes are concerned, it is important to do it correctly. If this is not done it is possible that a tax payer could face repercussions with the Internal Revenue Service.

Source: NerdWallet, “5 Things You Should Do Now for 2014 Income Taxes,” Steve Nicastro, Oct. 15, 2014

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