Tomorrow is the day your 2016 tax returns are due. They have to be filed electronically or post marked or you will likely face a fine from the IRS. For many of us, the 2016 tax season may be behind us, but now is the perfect time to be thinking about 2017. If you owed money to the government with your tax return now is the time to take action to change the outcome of next year’s tax season.
Here are 5 things you may do during 2017 that will have an effect on your taxes:
Part-Time Jobs
My wife’s employment consists of two part-time jobs. Each income source is analyzed on it’s own, resulting in very little to no federal or state income tax being paid from her paychecks. However, collectively our income requires a significant payment out of each check. If your family income streams are similar to this, you may consider having a set amount withdrawn from each check, or decreasing the withholdings number for the largest income source to make up the difference for no tax being taken out of the smaller income sources.
Freelance Jobs
As a freelance writer, I’m considered an independent contractor. There is zero taxes withheld from this income. My options are to pay quarterly taxes to the government on my own, or change the withholdings on my larger income source to make up the difference.
Buying a House
When you purchase a home, you may purchase interest points. These are tax deductible and will have in impact on your next year’s tax return. Additionally, you will now have the tax deduction of mortgage interest. This will likely result in a decrease in your taxable income and your overall tax bill.
Mortgage Refinance
Refinancing a mortgage can have the same impact as buying a house. Again, you may purchase interest points that can be used as a tax deduction. Additionally, your amount of mortgage interest may increase because either you are restarting the term of your loan, or if you used a mortgage refinance to use equity in your home to consolidate debt.
Buying A Car
The sales tax from the purchase of a vehicle may be tax deductible. This could reduce your net taxable income, and thus your overall tax owed to the government.
Taking Action
If you have or plan to do one of the above during 2017, you may want to take action to even out your tax bill. If you think you will owe more in taxes, it’s better to increase your withholdings now to avoid owing the government a large sum of money next April. If you think you will owe less in 2017 you could either take the refund, or take action to put more money in your pocket during 2017 as opposed to getting a large income tax return next year.
How about you, EOD Nation, have you analyzed potential changes to your tax bill for 2017? Have you taken any action?
We ran into the opposite issue last year because of refinancing the house. Our interest was much lower than our old loan. A smaller interest deduction meant we owed more in taxes. Paying less interest is a wonderful thing, but you have to allow for the difference in your deduction!