Do you want to pay less in income taxes? Every taxpayer in America would offer a resounding YES! to that question. Everyone is looking to pay less in income taxes. However, the big question is – How?
There is a critical first step that cannot be skipped if you’re serious about saving money on taxes.
You need to start by having a clear picture of your finances.
It’s that simple, even before your CPA can evaluate your options, you need to have the information that reflects your income and expenses for the current year. The best way to do that is to select a cost effective, user-friendly accounting software.
If you’re an employee – you need to get connected to financial management software that allows you to have an accurate picture of your finances. There is free software for personal finances like Mint that can help you do just that (www.mint.com). This software lets you connect your bank accounts and credit card accounts to easily track your income and expenses. Using this software, you can generate personal financial statements that are the basis for a tax savings plan. Before a CPA can even begin to develop tax savings strategies, we’ll need an accurate picture of your financials.
If you’re a business owner – you need to get connected to accounting software that allows you to have an accurate picture of your business. The most cost-effective software is Quickbooks self-employed that starts as low as $5/month (www.quickbooks.intuit.com/self-employed). It also connects to bank accounts to allow you to generate business financial statements. Having an accurate picture of your business’ profit or losses is the first step before any tax savings strategies can be evaluated.
Bear in mind, tax savings plans are not “one size fits all.” What will save you tax dollars, may not be the same approach that creates savings for your neighbor. That is why we need to start with obtaining a clear financial picture in order to craft a tax savings strategy that works best for you.
While you’re working on getting that clear financial picture, there are some initial tax savings measures that will be beneficial to all tax payers in all financial scenarios. That is to maximize your pre-tax deductions. Pre-tax deductions will reduce the taxable income of an individual which also reduces your taxes. Examples include:
- Retirement contributions
- Flexible Spending or Health Savings accounts
- Dependent Care Flexible Spending accounts
- Life Insurance
Maximizing these options will make a noticeable difference in your tax bill. And remember, when you’re serious about saving money on taxes, your first step is to get a clear financial picture. Please contact us if you need help with tackling that first step.