Eight (8) Year-End Tax Moves that Could Earn You Big Savings
We all know and dread April 15th as the income tax return filing deadline, but people who save big on their taxes know one secret that many others don’t: plan ahead! To ensure that you pay the IRS as little as possible of your hard-earned income, there are some moves you need to make before the year’s end.
While congress is making tax breaks harder and harder to come by, there are still a few breaks available—you just have to know where to look for them. True, some require a little planning, but others are quite easy to come by. However, all are worth checking out, as each can make a significant dent in your tax bill.
The following are eight (8) moves to make before the year’s end to ensure a big tax-savings:
1. Defer Your Income
The highest tax-rate is a whopping 39.6% on taxable income of more than $406,750 for single tax payers; $457,600 for married couples filing jointly; and $432,600 for head of household tax payers. If the pay you’re owed before the end of the year will push you into that top bracket, try to defer your receipt of money any way you can! Ask your boss to hold your bonus until after the New Year; put more money into your tax-deferred retirement account; if you’re self-employed, don’t send invoices out until early 2015.
This strategy works no matter what tax bracket you’re in, and is a great way to keep from moving up into the next higher tax bracket.
2. Add To Your Retirement
If your company offers a 401(K) or similar tax-deferred savings or retirement account, add as much as you can to it. Doing so will lower your taxable income significantly.
3. Review Your Flexible Spending Account (FSA) Amounts
Some workplaces offer something called an FSA in place of health insurance. You can contribute up to $2,500 of your paychecks to it, and it’s all tax-deferred.
However, the downside of an FSA is that, if you don’t use it by year’s end, you lose it. So while it may save you in taxes, it could hurt you in wasted money.
4. Take Advantage of Your Losses
Sometimes, losses aren’t all bad. If you have assets that have decreased in value over the past year, use them to offset any gains. If your losses outweigh your gains, you can use up to $3,000 to reduce your ordinary income amount. More than $3,000 can be carried over to use in future tax seasons.
5. Use Your Homeownership Status
There are several reasons it’s nice to own your own home, but tax breaks are high up on the list. For instance, did you know that if you make your January mortgage payment early—like, before December 31st—you can deduct the mortgage interest on your coming tax return? You can also do this with your property taxes.
6. Bunch Your Deductible Expenses
Many taxpayers know that there are some expenses they can write off to lower their adjusted gross income. However, many people don’t know that for many deductions, they need to hit a threshold amount before those deductions can apply.
For instance, in order for your dental and medical expenses to be written off, they must exceed 10% of your AGI. Miscellaneous expenses, such as business claims, must exceed more than 2% of your AGI. To make sure you meet these thresholds, start consolidating your expenses now. It’s much easier to plan your costs now than to scramble for eligible expenses come April.
7. Give, Give, Give!
Charitable donations and gifts can help reduce your tax bill significantly. Giving anything from clothes to furniture to vehicles will help—both you and the charity you’re giving to. You can even donate stock that you’ve held for more than a year. Each of these things can be written off for a certain amount, which is determined by the receiving charity.
8. Adjust Your Withholding
It’s so simple and so obvious, yet many people don’t think to do it. If you found yourself writing the IRS a big check back in April, or even if you received a rather large refund, you might want to consider adjusting your withholding.
Most of us cover our eventual tax bills through withholding, so if you find you’re getting a lot back, you’re withholding too much. The opposite is also true too: if you owe a lot at the end of the year, you’re withholding too little. Ideally, you want the correct amount to come out of your paychecks to ensure you don’t under or overpay.
Planning for taxes is difficult, especially if you hope to avoid being thrust into the next tax bracket. To ensure that you save as much money as possible this coming tax season, let us help you. Visit http://www.irsallstar.com/our-services#15 to see why we are the tax professionals you should want to work with!