The year is quickly coming to a close, which also means that another tax season is upon us.
While you may be thinking of all the things you need to do and get through before focusing on taxes, like the holidays and Christmas shopping, it’s always a good idea to plan ahead.
More likely than not, your tax goals include minimizing what you owe and maximizing your refund.
To do that successfully, you’ll want to start looking at your taxes before the year is over.
Instead of waiting until tax season gets closer, take a look at these seven year-end tax tips to get the most out of your taxes.
1. Be Charitable
Now is a perfect time to clean out your home and closet and donate any items you don’t need anymore. If the things you choose to donate are gently used and still worth something, you could receive hundreds of dollars in tax deductions.
Furthermore, if you choose to donate a monetary value instead, be sure to save the check or credit card receipt as proof. Depending on the value, you may also need proof from the charity itself.
Make sure any checks are in the mail by December 31st to qualify for the next year. Be sure to look into tax regulations before doing this, as some donations to organizations aren’t tax deductible.
2. Examine Your Investments
While you shouldn’t invest based on saving money your taxes, sometimes, what doesn’t look great within your portfolio could be beneficial on your return.
In the case of taxes, investment losses aren’t always a bad thing. If you find you have more losses than gains, you can offset those gains for up to $3,000 and avoid being taxed on some of your gains.
However, if you find yourself within the 15% tax bracket, you won’t have to pay anything on long-term capital gains.
3. Contribute to Your Retirement
Adding to your company’s retirement plan or your 401(k) is always a good idea in the first place. More than that, however, it’s a smart tax move as well.
Most contributions to your retirement plan are taken out before your taxes, so any money put away will be tax-free. Of course, you’ll have less income once you receive your paycheck, but again, that’s less income you can be taxed on.
There are exceptions – for example, if you contribute to a Roth plan, you put away taxed money, but receive tax-free growth. Talk with your employer and consider putting away the maximum contribution amount before the end of year.Want to save money on your taxes? Here are 7 year-end tax planning tips to use Click To Tweet
4. Hold Back Your Income
Moving to the next (or top) tax-bracket can make a large difference in what you’ll end up paying. The best plan, if your income will move you upward, is to defer as much money as you can until the New Year.
Ask if any bonuses can be held off until January or contribute to your retirement plan to save money from being taxed. If you have any assets or stocks that you were planning on selling for gain, hold off just a little while longer.
Moreover, if you’re self-employed, work freelance or have jobs on the side, wait to send any invoices or payment requests until the first week of the year. By waiting just long enough, you may keep yourself from rising to the next tax bracket and being taxed even more.
5. Make Investments in Education
Although this won’t affect your federal tax return, contributing to an education savings account can help you save on your state tax return.
There are a few education savings plans available and you’re usually allowed to contribute up to $2,000 per child. So whether you have a child yourself or a grandchild that you’d like to assist, you can receive a partial deduction or credit on whatever you give.
Before doing so, be sure to look into your state’s tax laws and rules to ensure it’s a deduction or credit your state allows.
6. Give to Others
If you’d like to give monetary gifts to friends and family members, now is the time if you’re hoping to receive tax benefits.
The law allows you to give up to $14,000 to as many individuals as you want, without having to file a gift-tax return. If you’re married, that tax-free number rises to $28,000 per recipient. Like with so many other tax moves, however, be sure to give any lucky individuals their gift before December 31st.
7. Get Help
Tax planning isn’t an easy task and can be quite confusing the further up you go within the tax-brackets. That being said, if you’re trying to be as smart as possible with your taxes, it sometimes pays to get professional help. Tax professionals can assist you in evaluating your situation and deciding which moves and tips are the most beneficial and make the most sense for your financial situation.
Taxes are that necessary, civic duty that most people don’t necessarily love, but realize its importance. Still, when you find a good portion of your paycheck eliminated, it can be hard to swallow. While you’ll always pay an amount of your income towards taxes, there are moves you can make to get the most out of your return and maximize your deductions.
Depending on your situation, there are often multiple expenses and savings you can deduct to your benefit. The important thing is to carefully consider every tip while examining your finances to figure out which moves are beneficial for you. Again, if you’re really stumped on what’s best for you, it never hurts to enlist a little professional help, especially if you gain more value than you pay for.
What have been some of the tax tips you’ve found most beneficial? What’s your best advice for figuring out your taxes on your own?