Print
Email
Don’t pay more in taxes than you need to. Learn how a few simple steps could help save you money on April 15.
While it’s nearly impossible to avoid paying taxes, it is possible to reduce how much you owe. You can reduce your bill by taking advantage of deductions, credits and other options. Here’s an overview of some year-end moves that can save you money come April.
Add to your retirement funds.
Contributions to your 401(k) through your employer are deducted before tax, reducing your taxable income. You could also open an IRA which could, in some cases, be funded with pre-tax dollars. If you would rather forgo the upfront tax break, you can choose a Roth version for either retirement fund and withdraw your funds at the appropriate age tax-free.
Update your W-4 form.
When you have too much money taken out of your paycheck each pay period, you are essentially giving a loan to the government. Update the number of withholdings on your W-4 form and stash away the savings.
Fund a 529 plan for your child’s college expenses.
Funding a 529 plan is a win-win situation. Your child will have a college fund that grows tax-free, and you can claim the donation under the annual federal gift tax exclusion (as long as your donation doesn’t exceed $13,000).
Donate to your favorite charity.
If you itemize on your tax return, donating to a charity can be a great way to save on your taxes. Besides cash, you can also donate personal property, such as a used car or stocks. Just don’t forget to get a receipt from the organization you donate to.
Spend what’s left in your flexible spending account.
Flexible spending accounts (known as FSAs) are often available through your employer and can be funded with pre-tax dollars from your paycheck. If your employer offers such an account and you don’t have one, sign up. If you do have a FSA, now is the time to refill your prescriptions, see the dentist or get that new pair of glasses. Most FSAs have a “use-it-or-lose-it” policy.
Pay your January mortgage early.
By paying your January mortgage on or before December 31, you can take an additional deduction for the interest paid on that note. (You’ll need to remember, however, to add the extra interest amount to the 1098 form you receive from your lender.)
Take capital losses now.
If you have some losing investments in your portfolio, now may be the time to cash them out—those losses could reduce your taxable income. To determine if you can claim a loss, you need to apply your overall losses to your overall gains. (If you have a loss of $2,000 and a gain of $1,000, then your net loss is $1,000.) You can deduct up to $3,000 in capital losses in one year—if you have more than this, you can carry-over your losses to future tax years.
Deduct job-hunting expenses.
If you’ve been searching for a new job in the same line of work, you can deduct your job-hunting expenses. And, if you found a new job that required you to move, you can deduct moving expenses as well.
Deduct health care costs.
If you itemize your deductions, you may be able to include some of your medical costs and insurance premiums. These expenses however, must exceed 7.5 percent of your adjusted gross income (AGI) before you can claim them. Allowable costs include diagnostic tests, some medications, eyeglasses, some insurance premiums (including long-term care), hearing aids and more.
Deduct your kids.
If you welcomed a new child into your family this year, you may qualify for the child tax credit—which can reduce your taxable income by up to $1,000 per child. You can also deduct adoption expenses.
These are just a few ways you may be able to save on your tax bill. To find others, talk to a tax professional.
This article contains general information. Individual financial situations are unique; please, consult your financial advisor or tax attorney before utilizing any of the information contained in this article.
Related Articles:
- What Is The Alternate Minimum Tax (AMT)?
- How To Choose A Financial Advisor
- Estate planning: Tax Planning For Your Estate
- Estate Planning: Why You Need A Will
- Estate Planning: Should You Create A Trust?
- Retirement Planning: Start the Process!
- Retirement Planning: How much do I need to save?
- Retirement Planning: Tips for Saving
- Retirement Planning: Investment Options
- Catch Up On Your Retirement Savings
- Should You Invest In An ETF
- Should An Annuity Be Part Of Your Retirement
- What is an IRA?
- What is a 401k plan?
- Is a Roth IRA conversion right for you?
- Investing for beginners: The basics of how to invest your money
