Are you on the list?
The IRS is holding onto more than $1 billion in unclaimed refunds, and some of it may be yours. Tax law says a taxpayer has three years to file a return and get the associated refund. If you miss this deadline, the U.S. Treasury gets to keep your money. I am almost certain that most of us would rather not be on the list of the unclaimed funds yet every year I meet several individuals who are in it knowingly or unknowingly.
While each one of us may not have the same tax scenarios, I would like to share with you a few ways that you can at least stay away from the list.
Eliminate the tax code scare
The mention of the tax code is a scary couple words to many. To ease it up, let me try to water down the environment by using a famous quote by Benjamin Franklin “In this world nothing can be said to be certain, except death and taxes” followed by yet another quote ‘knowledge itself is power’.
The truth is real on the complexity of the tax code but within it, there are numerous ways that works in your favor. With good planning and proper guidance, you can decrease your tax bill and at the same time invest in yourself.
Invest in a 401(k) or Traditional IRA
Allocating money into a tax-free retirement account such as a 401(k) or IRA can move you into a lower tax bracket. In addition to the tax benefit, the earlier you start allocating money in your 401(k) or Traditional IRA, the better as this will reward you with more money after retirement. It gets even better when employers offer employees match on their contributions which in reality is free money. The overriding fact is that every dollar you contribute reduces your taxable income by a dollar and all interest, dividends and gains are tax-deferred. In other words, your retirement account grows tax free.
Contribute to a SEP-IRA
For self-employed workers, a SEP-IRA is the easiest and most effective way of creating a flexible retirement plan that lets you defer up to $54,000 or 25% of their net earnings from self-employment, whichever is less. A SEP-IRA can be funded as late as your income tax filing deadline, including extensions. For example, for 2016 tax year if you file a Schedule C, you have until Oct. 16, 2017 to drastically reduce their 2016 tax bill.
Contribute to a Health Savings Account
Contributing to a health savings account (HSA) reduces your taxable income dollar-for-dollar. HSA is a great way to save for future medical expenses because contributions reduce your taxable income and HSA distributions used for qualified medical expenses are tax free.
The annual contribution limit for 2017 is $3,400 for individuals and $6,750 for families, and there are no income limits. Unused contributions rollover each year like an IRA and are another way to save for retirement tax free. Participants age 55 or older can also make $1,000 of additional catch-up contributions.
Avoid Overlooking Deductions
While most people know about annual deductions, such as state income and local real estate taxes because they happen every year, but less frequent deductions can be valuable. If you experienced a theft, fire or other loss, you may be eligible for the casualty, disaster and theft loss deduction.
Other common deductions that can easily be overlooked include;
- Energy-efficient improvements like adding insulation, energy-efficient exterior windows and doors and certain roofs.
- Job hunting costs
Check items to see if they are deductible
The tax code is long and complex, and before you decide an expense is not deductible, please reach out to an expert to make sure. Even if you do your own return, you should make sure your advice is coming from a reliable source such as the IRS website.
At 7M we help you avoid the common mistakes that could be the difference between you owing or getting a refund.
Contact us at 405.202.3723 or email ben@7mbusinesssolutions.com