It’s tax time! No, it’s not April 15th and you are not the subject of a time travel experiment Read this article gone wrong. But if you are one of the millions of taxpayers who Read this article expects to owe and wants to minimize your tax bill, or you want to maximize your refund, the time to think about taxes is before the end of the year. The fact of the matter is that once January 1st rolls around, your accountant’s hands are pretty much tied in terms of finding ways to lower your tax burden. The good news is there are things you can do now that can save you money when it’s time to file.
If a large check was part of your income tax filing last year either as a refund or payment, you should take a closer look at what is being withheld from your pay. Ideally, this is something that you should’ve done months ago, but better late than never. Making a change in the closing months of the year may not be enough to mitigate your entire over- or underpayment, but it will certainly help. Plus, it will ensure that you’re on the right track for next year.
Feed Your 401(k)
Unlike with IRAs, contributions to your 401(k) have to be made before the end of the year (December 31st) in order to affect your tax liability. Since 401(k) contributions are made from pre-tax earnings, they provide a dollar-for-dollar reduction in your taxable income. You can contribute up to $19,500 tax-free per year up to age 50. If you are over 50, the annual limit increases to $26,000. Those limits are per person, which means married couples can double those amounts.
Defer Income
end of year taxes
Look at your income for the year and if you are close to crossing into a higher tax bracket, consider asking if some of your income can be deferred until next year. This is a particularly good strategy if you’re expecting an end-of-year bonus that will move you into a higher bracket. Asking your employer to pay your bonus at the start of next year can save you thousands in taxes and provide you with 12 full months to develop strategies next year.
Pay It Forward
As the holidays approach and gift giving is on your mind, consider increasing your charitable contributions as well. Tax-deductible charitable contributions are not limited to cash payments. You can donate clothes or household goods, and even cars and boats can be considered donations.
Home Improvements
Residential tax credits for energy-efficient improvements can reduce your tax bill by hundreds of dollars. So if you’re considering a new energy-efficient hot water system, new roof or furnace, now may be the best time to have the work done.
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