With Thanksgiving and the holiday season upon us, it’s easy to get caught up in buying turkeys and finding stocking stuffers for the grandkids. However, it’s also a great time to start thinking about reducing your taxes and planning for April 15th. There are several strategies you can use to cut your tax bill before filing with Uncle Sam in the spring. Consider these end-of-year tax tips:
Reduce your end-of-year income – legitimately.
A good number of IRS tax credits require taxpayers to meet certain income thresholds in order to claim them, including the child tax credit. If you foresee exceeding an income threshold for one or more of these tax credits, it might be worth reducing your taxable income by year’s end if you can. Of course, this can be done completely legitimately so as not to trigger an IRS audit. Let’s say you are expecting a holiday bonus from your employer in mid-December. Or, if you work as a small business owner, maybe you are anticipating payments from clients before December 31st. If possible, consider delaying the arrival of this income into your bank account. It can help reduce your expected amount of 2014 taxable income, and it can therefore allow you to stay within the limits of various tax benefits.
Make your move for a new job.
Are you looking to land a new job before year’s end? Would landing your dream job require you to relocate to a new city or state? If you answered yes to one or both of these questions, don’t forget about reducing your taxes by taking advantage of job search and moving expense deductions. If you spend money to travel for an interview, incur resume preparation fees, or actually relocate to a place more than 50 miles from where you currently live, you can write off these costs for job search and moving costs you incurred this year when filing your taxes in the spring.
Contribute to your 401(k), IRA, or other retirement plan.
An easy way to cut your income is to take some of your money and put it into a retirement plan. This could be a traditional 401(k) you maintain through your employer. Perhaps you have a regular IRA or a Roth IRA, or maybe you even maintain an SEP IRA for the small business you run. If you don’t have one of these retirement accounts, consider opening one through your financial institution and contributing to it before the year is over. Remember that the maximum amount you can contribute to a 401(k) is $17,500 – or $23,000 if you are over age 50.
Spend money on medical costs.
Nobody truly enjoys going to the doctor or dentist. But if you are in need of some type of medical checkup in the near future, consider picking up the phone and making an appointment now. In order to write off medical expenses, they must add up to 10% of your adjusted gross income (AGI), or 7.5% if you are over the age of 65. This is why it might be worth it to get that yearly checkup or dental cleaning prior to January 1st.
Consider donating to charities.
Making a donation to a charity gives you that good feeling inside. It’s also good for reducing your taxes. Consider cleaning out your garage, closet, spare bedroom, or storage unit by donating items to qualified charitable organizations this holiday season. Clothes, toys, electronics, vehicles, and stocks are just a few of the many things you can give to a charity and write off on your taxes when filing with the IRS. If you take a quick look around your house, you’d probably be amazed at how much stuff is right in front of you that can go toward a good cause. Just remember to get the proper documentation and receipts from the organizations to which you donate.
This article was originally published by 1800 Accountant
Published: November 17, 2014