The new tax season has already started. Are you ready for it yet? Whatever you do, don’t procrastinate; don’t put off paying taxes until it is too late. Remember, you have to file your returns by April 18 this year.
Here are the most important things you should be doing this early in the tax season.
1: Did you sign up for your employer’s 401(k) plan as yet?
This is very important. Over 55 percent of US workers have access to a 401(k) plan sponsored by their employers. But a vast majority of American workers do not participate in their employer’s 401(k) plans. That does not make any sense whatsoever, because 401(k) plans are the best tax saving scheme we could think of.
You should set aside 10 percent of your paycheck for these plans. For every dollar you put into these plans, your employer would put an equal amount. By passing over these plans, 25 percent of workers lose out on $24 billion in unclaimed matching dollars from their employers. So not taking advantage of your 401(k) benefits your employer and deprives you of what’s due to you.
2: Start your own IRA.
Now, it is possible you are self-employed and do not have access to a 401(k) plan sponsored by an employer. In that case, you can self-finance your own IRA. The IRA has a lower contribution limit than 401(k) – just $5,500 a year, while that for 401(k) is $6,500 a year. They are powerful tools not just for turbo-charging your tax savings, but also for planning your retirement. You have until April 18, 2017 to make your contribution for 2016. So if you haven’t done so already, hurry up!
3: Get the withholding amount right.
If you are an employee of a large corporation, your company would withhold a part of your paycheck for paying taxes on your behalf. The withholding amount should be just right, it should not be more than what it should be, and not less than what’s needed. Doing so would require a lot of calculations on your behalf.
If you pay the government more than what’s due to them, you will get a refund later, but that would also mean a giving free loan to the government. Now, why would you do that? The government has enough money, you don’t need to give it more than what it is due!
4: Make sure you fill up the 1099 forms correctly
As a salaried person, you probably know where to find the W-2 forms. But it is the 1099 forms that you should be looking at. These forms should be sent by January 31, but if you have missed out on that date, it’s okay. You can still try to send them as quickly as possible. Keep track of all the documents you need, and make sure you file all the paperwork needed.
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