At the end of the year, personal taxes are probably one of the last things on your mind.
However, this is a perfect time for implementing money-saving tax strategies to maximize your yearly deductions and minimize your upcoming tax bill.
Use these last-minute strategies to save money on your taxes:
1. Delay some income
One way to save money on your annual taxes is to minimizing your income. You do this by deferring some of your earned income until the following calendar year.
Receiving this income after January 1st rather than during the last week of December can make a big difference on your taxes.
- Do you have clients or 1099 income that you can delay until January 1st? Try to push back some of your invoices or billable hours until the New Year starts if you can.
2. Tax credits
Tax credits are like deductions, but they either deduct money directly from your taxable income or add money directly to your refund. Tax credits can save you a significant amount of money. Do a little research to see which credits you qualify for since tax credits change from year to year.
- Some examples of tax credits include adoption tax credit, credit for the elderly and disabled, retirement savings credit, dependent care credit, HOPE credit, child tax credit, and lifetime learning credit.
- The Energy Tax Incentives Act establishes another important group of tax credits, including credits for energy-efficient improvements for your home, solar energy equipment, or purchases of hybrid vehicles and other alternative energy vehicles.
- Each tax credit has unique purposes and qualification requirements. For example, HOPE credit and lifetime learning credits pertain to education. There are a number of tax credits that apply to adopting or raising children.
You can stockpile deductible expenses in December to reduce your taxable income for the year, particularly if you have self-employment income or own a small business.
Ensure to include only legitimate deductions on your return, however, since the IRS carefully scrutinizes each one.
- If you prepay a portion of your taxes, it counts as a federal deduction. If you withheld your state or local taxes this year and you’re planning to itemize your deductions, this will be an additional benefit for you.
- Contribute to your 401(k) or other tax-deferred retirement plans as much as possible to increase your savings for retirement while cutting your taxes as well.
- You can also choose to pay your January mortgage bill early to include additional mortgage interest, which is also a deductible expense.
4. Donate to charities
Take advantage of the season of giving during the holidays by donating to your favorite charity. You can deduct any contributions prior to January 1st on your upcoming tax return.
- You can also donate investments like stock to a specific charity, which allows you to deduct the entire value of the stock without paying tax on the appreciation amount.
Use these money-saving tax strategies to come out ahead as you prepare to file your year-end taxes.
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