You have probably already filed your federal taxes as individual, business, or both. We have gathered a few essential tax tips you should do now to minimize your burden before next year catches you by surprise.
1. Be Aware of Your Tax Bracket
What tax bracket you are in determines how much you will pay. You don’t want to be in that “danger zone” where making more in income actually costs you more in taxes. New tax brackets for 2021 have not been announced. However, rumors are they may rise. For 2020, federal tax rates start at 10% and rise to 35%.
Current Tax Brackets:
- 10% for single individuals making less than $9,875 or married couples making less than $19,750.
- 12% for single individuals making more than $9,875 or married couples making more than $19,750.
- 22% for single individuals making less than $40,125 or married couples making less than $80,250.
- 24% for single individuals making less than $85,525 or married couples making less than $171,050.
- 32% for single individuals making more than $163,300 or married couples making more than $326,600.
- 35% for single individuals making more than $207,350 or married couples making more than $622,050.
You may click here for more 2020 tax bracket info from the IRS.
2. Make Tax-Deferred Contributions
Those of you with a 401(k) or traditional IRA can dodge quite a bit of taxes by contributing to them. This is not considered income as usual and will be deducted from your total income. You may contribute up to $19,5000 to your 401(k) or $26,000 if you are over the age of 50. Each dollar you put into a 401(k) or traditional IRA will decrease your taxable income for the year. A main benefit is it can drop you into a lower tax bracket and save you thousands. Even if it doesn’t take you down a tax bracket, you will still be taxed less and have more money for retirement. You may also donate to charities in order to reduce your taxable income. Consult your bookkeeper for how much is ideal to save and donate.
3. File Early
Filing early is an excellent choice, especially if you are owed a refund. Those of you who owe the IRS should still consider filing early. Filing early has other benefits, the main of which is fraud prevention. Scammers enjoy filing incorrectly as you or your business, collecting a refund they didn’t earn, then leaving you to clean up their mess.
4. Save Your Documents
It is easier than ever to save receipts both digitally and in print. Use mobile tools and more to get everything organized in time for next year. Keep your taxes in your mind for the entire year. Be sure not to overlook opportunities to reduce your taxable income such as mileage, certain medical expenses, and much more. You’ll be glad you thought ahead when next year’s tax season comes around.
Tax Tips With Houston Bookkeeping
Remember that for this year, you have until July 15, 2020 to file your taxes. Feel free to contact us if you live in the Houston area and need help doing so or preparing for next year.
