Tax Day has come and gone. For many, yesterday was a painful experience as they realized they owed the government more than expected. The good news is that, a year from now, filling out your 2018 taxes does not have to result in a repeat performance.
Today is a great day to take a few steps in helping ensure that you will not get caught off guard next year.
- Adjust your W-4. A W-4 is also known as the Employee’s Withholding Allowance Certificate. This form determines how much will be withheld for federal tax purposes from your paycheck. If you found yourself owing a significant amount of taxes this year, considering claiming less allowances (less allowances = more withheld).
- If you are self-employed, keep track of what you owe. Self-employed individuals often find themselves owing more taxes than they anticipated. This is in large part because of Social Security taxes. Self-employed individuals owe the combined (employer and employee) amount for Social Security taxes. If you plan on paying taxes annually as opposed to quarterly, keep really good track of what you owe. Every time you get paid, I recommend setting aside a portion of the pay in a separate account for tax purposes.
- Habitually keep record of possible deductions. There are several deductions out there that may apply to you. For example, if you find yourself driving your own car for work without reimbursement, keep track of the mileage. Every mile driven can lead to a possible deduction. Don’t find yourself filled with regret next year because you forgot to maintain a record of possible deductions.
- If you are a minister, get your housing allowance right. Housing allowances allow eligible ministers to exclude a portion of their gross salary for federal income tax purposes. The amount they are able to exclude is the lesser of the amount spent, fair rental value, or amount allowed by the church. Ministers, take full advantage of this. If you claim too little, you can end up paying the government more money than you should.
- Contribute to your 401(k). Contributions to pre-tax retirement accounts, like 401(k)s, allow you to reduce your taxable income by the amount contributed (though there are some limitations). Not only does this reduce your taxes, it helps you have enough for your future retirement. How much should you put toward retirement? I recommend setting aside 15% of your gross income into a retirement account.
- Give generously. Giving and living generously is the “why” behind our pursuit of financial health. But it also provides a tax deduction. Use your resources to advance God’s Kingdom and get a tax deduction. It’s a win-win scenario.
Waiting until April 2019 to think about taxes may cause you to owe more than you anticipated. Don’t let next year’s Tax Day deliver you an undesirable surprise. Reducing the amount you owe next year starts today.