Trimming Your Taxes

Many Americans dread filing their taxes, especially if it involves writing a big check to Uncle Sam. Make this the year you get a grip on your taxes. Here are some simple things you can put into practice this year to avoid a tax bill that gives you sticker shock later on.

Save for Retirement
Setting money aside in an IRA or your employer’s 401(k) or 403(b) benefits you in two ways. It not only helps you save for retirement, it gives you a valuable tax break. Money socked away into a retirement account reduces your adjustable gross income, which means you’ll be taxed on less than what you’ve actually earned.

Take Advantage of Your Flex Plan
Take advantage of your employer’s flexible spending plan. A flexible spending plan allows you to pay for dependent care and health care with pre-tax earnings. Daycare, medical expenses, even eyeglasses and contact lenses and are examples of what you can use this account to pay for.

Use a Tax Advisor
Many people prepare their taxes themselves simply to avoid the expense of hiring a tax professional. However, a qualified CPA can help you find missing critical deductions and tax credits that you may not be aware of. This can actually end up saving you money in the long run. Your CPA may also be able to give you valuable advice for moving forward with your financial plan.

Increase Withholdings
If you ended up with a tax bill this year, you most likely didn’t withhold enough from your paycheck in 2007. Adjust withholdings to avoid paying in in 2008. Be wary of withholding too much, too. You don’t want to give Uncle Sam an interest-free loan on your hard-earned money. Some people use an over-withholding strategy to force savings in order to get a huge refund. There are better strategies for saving. Instead, have your employer automatically deposit some of your paycheck into a money market savings account each pay period.

Save Every Day
Keeping a careful watch on the money you spend every day is what truly results in money in the bank at the end of the year. Seemingly small things do matter – and contribute to your financial success. Giving up a Starbucks habit, brown bagging it to lunch more frequently and clipping coupons are examples of small things that you can easily fit into your lifestyle. Consider this: if you save just $10 a week, you’ll have an extra $500+ in the bank at the end of the year.

About the Author: Kimberly Danger is publisher of Mommysavers.com.