Paying taxes should never hold you back from financial freedom.
Taxes are the price we pay for living in a civilized society. They’re never fun, and sometimes they’re not fair. But they’re a fact of life, and they have a significant impact on your personal finances.
Nobody likes seeing hard-earned money deducted from their pay, and it’s never fun to write a check to the government. To make matters worse, taxes can be really complicated. Depending on where you live, you might have to pay taxes to three or four different government organizations, which makes for a paperwork nightmare.
What’s worse, if you’re not smart about tax planning and preparation, you could be paying too much… or be caught by a surprise tax bill when you don’t have the money to cover it.
There’s not a lot you can do to take the sting out taxes, but there are some practical steps you can take to minimize your tax burden and reduce the stress it causes you. We’re going to take a look at those today.
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Now, back to the topic at hand:
The way you plan for taxes could have a big impact on how much you end up paying. To keep your bill as low as possible (without cheating), we’re going to discuss five do’s and don’ts of preparing for and paying taxes.
1) Do adjust your withholding.
When you get a paycheck, your employer withholds some taxes for you, but the amount they withhold is just a guess. If they withhold too little, you’ll owe additional taxes. If they withhold too much, you’ll get a refund. Refunds feel nice, but it’s better to have that money in your budget every month instead of letting the government keep it all year. Change your withholding at work to get as close as possible to a zero balance on your tax bill.
2) Don’t drag your feet.
Whether it’s filing your taxes or renewing your car registration, dealing with taxes is a headache. You might be tempted to wait until the last second… or even longer. But waiting only makes the stress worse. And if you’re late paying taxes, you can face big fees, penalties and even jail time.
3) Do pay your share.
You have a duty to society to pay taxes, whether they seem fair or not. You may be tempted to lower your tax bill by cutting corners or bending the truth. But in the long run, cheaters never win. If you get caught cheating, you’ll be in real trouble. So be honest and pay what you owe.
4) Don’t miss your deductions.
You have a duty to yourself not to pay more taxes than you owe. If there are legal and honest tax breaks available to you, take them. Spend some time learning about what incentives, deductions and credits you might qualify for, and do the paperwork necessary to claim them.
5) Do plan your payments.
Surprise tax bills really stink. If you know you’ll owe vehicle registration, property taxes, payroll taxes or any other kind of taxes later on, start planning for them now and set aside money to pay them.
Taxes will never be fun. But if you follow these rules, you can keep them from limiting your financial progress.