Ten Tax Tips for Year End
Trimming your tax expenses is very important today as many are struggling in this economy to pay their bills and afford some luxuries. That is why doing these 10 things before the end of the tax year is very important. Don’t wait until it is time to prepare your taxes to start thinking about reducing your tax liability, start planning and preparing well in advance.
New Tax Breaks: Make sure to check the tax code when it becomes available in fall for new tax changes that may affect you and follow any new federal tax laws that are passed this year that provide new ways to save on your taxes.
Accelerate Deductions: If you pay estimated tax payments during the year, pay your first payment for next year this year. This will give you the tax advantage in the current year. You can even pay the estimated taxes with credit and quickly pay it off after you receive your refund.
Delay Income: If you are self-employed or run a small business on the side, wait until January to bill your clients. That way the income becomes taxable next year instead of being taxable in the current tax year.
File your Taxes on Time: Avoid penalties and interest by filing your return on time. An extension only delays the filing of the return, the taxes due are due on April 15th regardless of filing a tax extension. You will need to estimate the taxes you owe when you file the extension and send the IRS a check.
Pay Medical Expenses This Year: By grouping your medical expenses into the same you may qualify for the medical expense deduction. This has a 7.5% floor that you must get over to qualify. So if you have one procedure early in the tax year, try to have another needed procedure during the same tax year to get the deduction.
Make an Extra Mortgage Payment: Pay January’s mortgage payment in December to get the interest deduction this year. Of course you will be light when it comes to interest paid next year, but getting the deduction a year early is worth it.
Offset Investment gains with Losses: If you cashed out investment gains in a taxable account this year, make sure to cash out some losing investments before the year ends so your net income on the sales is close to zero.
Property Taxes: Like your mortgage payments, you can pay your property taxes early and get the deduction in this tax year. These two early payments can make a big difference in your tax return when you file next year.
Gift Giving: You can make charitable gifts to organizations and churches before the end of the year and get a nice deduction. Also consider giving gifts within the gifting limits prior to the end of the year to children and grandchild.
Retirement Contributions: This tip can be completed after the end of the year as long as all contributions are made by April 13th. Plan ahead into what kinds of retirement accounts you will make contributions to get the maximum tax benefit this year and when you withdrawal the money in retirement.