Success is where preparation and opportunity meet. – Bobby Unser
Happy New Year Everyone! If you’ve been following The Thrive Vine you’ve probably seen not much posting has been going on. Things have been crazy but alot of new and exciting things are happening around The Vine. As always our goal still remains to provide a community to help one another through shared experiences. After all there is no greater resource than each other!
With that said lets hop into this week’s blog. The exciting subject of Taxes… Since it’s January many people might think “It’s only January, I don’t need to file my taxes till April 15th…soooo why are we talking about this now.” Well we all know that 2020 was pretty much a shitshow and I don’t know about you but a $600 stimulus check won’t really do much for me. As a result it’s time we take matters into our own hands by maximizing our tax returns not only this year but for years to come as well. In today’s blog I’m going to discuss Three of the best strategies I’ve been using to ensure I always receive a refund on my taxes….
Get Organized With Your Write Offs- When most people think about taxes I think it translates as a fairly easy process. We get our W2’s from our employers, we take them to a tax professional, or enter our earnings ourselves, and then Wallah! Our taxes are done. I wish it was this simple but by taking this approach millions of people leave so much money on the table. With that said organizing your write offs doesn’t have to be weeks of going through receipts or remembering what you purchased. One great tool that I use to track my personal networth is Mint.com. What I love about Mint the most isn’t the fact that it tracks my purchases, or can easily link to any accounts I have… I get the most out of Mint.com when it comes time to do my taxes. Being a landlord and a real estate agent I have lots of things to write off, from any improvements or materials I purchase for my rental property, to writing off my MLS dues and other business expenses I incur as a real estate agent. Mint.com allows me to simply create a tag (which I use as 2020 Taxes) and then download an excel spreadsheet to go through my years worth of transactions. Now you might be thinking… “going through a years worth of transactions… are you kidding me!?” Yea yea I’m getting to that. Like I said you can export all of your data into an excel spreadsheet. Simply filter for your expenses, highlight them and then provide those to your tax professional and you’re golden.
Now I know what you’re saying, “ummmm that’s great but I don’t own a business or a rental property.” Well this is also a great way to track medical expenses, rent payments (if you are a tenant) or property tax payments. All of which are tax deductible.
Mind Your Business – Have you ever thought about starting a business but were like “idk if it would ever be successful or profitable.” Well in some instances starting a business might be the right move just for tax purposes. Do you blog and sell content, crochet and sell your work, or mentor individuals? These are all businesses that could have big implications on your taxes. I’ll speak from experience on how owning a business can essentially be the difference between you owing on your taxes. Last year I had a great opportunity to get a decently paying job. However there was one flaw, I couldn’t contribute to my employer’s retirement plan until I was working there for at least 1 year (we’ll discuss why this is important in the next point). Since I wasn’t able to contribute to my 401k plan my paychecks were higher, which was awesome.. But that also made my taxable income higher as well. At the end of the year I was in a completely different tax bracket than the year before because my paychecks were higher than the previous year. Knowing I’d be taxed at a higher bracket I doubled down on organizing my write-offs. At the end of the year I calculated I had over 30k in write offs between services and materials for my rental property, items I needed for my real estate business such as phone, internet, and specific dues associated with being a realtor, and lastly any personal expenses such as co-pays or paying for an educational class. What this meant was that I didn’t end up owing federal or state taxes at the end of the year and that was good enough for me.
401k Time – One of the best strategies to lower your taxable income is to contribute more to your 401k. For a long time I personally hated contributing more than 8% to my 401k I always wanted to stay cash heavy and love to have a decent amount of money in reserves. Afterall I didn’t want to tie up hundreds of thousands of dollars in a 401k that I wouldn’t be able to touch penalty free until I’m 65.. That’s kinda a bummer… However, like most things in personal finance, there is a strategy to get around the 401k access and penalty debacle (more blogs on those strategies to come). For this blog though it’s important to know that the more you contribute to your retirement the more you can take advantage of any employer match AND take the tax advantages that are associated with a lower taxable income.
Conclusion – It’s never too early to get started on your tax strategy. Being organized and preparing for your taxes to be done doesn’t need to be scary, confusing, or messy. There are so many tools available for making sure you get the most return out of your taxes. How do you prepare for your taxes? Do you have any helpful hints that might help others in the community! Comment below or share on our social media, we’d love to hear from you!