It's tax time!
At least it was for the Hill Family this weekend. We cranked out our taxes while the kids rode their bikes around on an unexpected 60-degree weekend. Equipped with our laptop, our nerdishly organized tax document folder and with some surprisingly cooperative kids, we finished in just under 3 hours.
As I was going through all of the steps, we came across quite a few areas where we were maximizing our tax savings.
Here are 5 ways we're saving on taxes this year:
1. Use Tax Software instead of a CPA
For the past few years, we've been using a CPA to help us file our taxes. She did a fine job, but I had a goal in 2016 of becoming more familiar with the process so we could do it ourselves. With all of the tax software options out there and our non-complex tax situation, I figured that I would give it the old college try. I was pleasantly surprised with the results!
Preparing the initial documents for our former CPA took the same amount of time that it took me to complete all of our taxes this weekend. In addition, we saved $150 compared to last year! TurboTax was our weapon of choice. It was simple, intuitive and quick.
Although we enjoyed TurboTax, there are other great tax software options out there to consider like HR Block and TaxAct. All three have free options for first-time filers or college students as well as more advanced versions for people who own a small business.
2. Max Out 401k Contributions
Last year, I took full advantage of my 401k at work by contributing the maximum allowable amount of $18,500. Not only do I get a match on 100% of my contributions at my job, but I got some nice savings on my taxes as well.
Since my 401k contributions are contributed pre-tax, my taxable income went down by $18,500. This allowed me to pay less taxes this year. Increase retirement savings. Decrease taxes. Score!
3. Donate Cash to Your Favorite Charities
It pays to give. Donating cash to the charities you love gives you a personal reward as well as a financial one come tax time.
Over the last few years, we've increased our charitable giving to our local community church, global poverty support organizations like World Vision and to charities that our friends and family feel strongly about. With those cash donations, we're able to get tax deductions so we're giving our money to those in need and not to Uncle Sam.
4. Donate Goods to Charitable Organizations
At least 4 times a year, Nicole and I go through our house and declutter. We end up accumulating a lot of toys, clothes and other household items throughout the year that we just don't need anymore. If we're not putting these items on Craigslist, eBay or Facebook Marketplace, then we're donating them. When we donate, we're sure to get an itemized receipt so we can get additional tax deductions. By donating goods to charities, you will:
- Help those in need
- Declutter your home
- AND get money back!
Some organizations even come to your house and pick up your items from your front door step! Below are charities to consider – check the sites to see if they operate in your area:
Generally, non-cash contributions over $500 get a bit trickier and require a more detailed appraisal. Bill Bischoff breaks it down a bit further in this article. If you have expensive items around your house that you don't use anymore, I'd recommend selling them on Craigslist instead.
5. Save For Your Kid's College
In our state-sponsored 529 program (Michigan), we're eligible to receive a state income tax deduction for our contributions. When we're saving for Calvin and Zoey's college, we're getting a little money back in return. Thank you, Michigan!
Outside of the potential income tax deduction in your state, you also get the tax benefit of your earnings growing tax-free. Additionally, when you use the money for college expenses you're free from federal and state income tax. Check your individual state program to determine what tax benefits exist in your state. Either way, it's a win-win for you and your kids!