Keep taxes in mind year-round

We all need to save more money, pay off debt and build a solid nest egg for our retirement years. One strategy is to lower your tax liabilities. You’ll get best results if you start working on it now, rather than waiting until the April 15, 2017, filing deadline is looming. Here are some ways to keep more of your hard-earned dollars through advance tax planning:

• Contribute to your retirement accounts now. The best bet for saving on taxes is to contribute as much as you can to tax-deferred retirement accounts such as IRAs and 401(k) plans, especially if the account carries an employer match. Many workers wait until the end of the year, or until the tax deadline, to make contributions. However, the earlier you contribute, the earlier those funds begin to earn compound returns, tax-deferred. Contribute midyear, and consider increasing your contribution amount, to increase the amount of money earning investment gains and to get tax breaks on more of your 2016 earnings.

• Keep records of spending so you can itemize. Itemizing your tax deductions rather than taking the standard deduction can save significant tax dollars, especially for self-employed people and people with high medical expenses. But you have to keep detailed records throughout the year so that you can compare your qualified expenses with the standard deduction, which for 2016 is $9,300 for heads of households, $6,300 for singles and married filing separate, and $12,600 for married couples filing jointly. Areas in which itemizing may pay off include medical expenses (you may deduct the amount above 10 percent of your adjusted gross income), mortgage interest and charitable donations. You also can deduct miscellaneous expenses above 2 percent of your AGI including business expenses such as travel, clothing and transportation; job-hunting costs; home office expenses, professional dues and subscriptions; and many more. See www.irs.gov/publications/p529/ar02.html.

• Open a health savings account. Check to see if you employer offers a high-deductible health care plan with a health savings account (HSA). The HSA allows you to build up funds with pre-tax dollars to pay for future medical care expenses, including post-retirement. Contributions, earnings and withdrawals are tax-free on the federal level. While premiums tend to be low, out-of-pocket expenses can be high. However, many employers contribute matching funds to HSAs, a very powerful incentive. Money left in your account at year’s end carries over to the next year, so it can be a smart move to pay as many medical expenses out of pocket as you can and let the HSA build into a large fund for your medical expenses after you retire.