4 Year End Tax Moves for Individuals

Each year we deal with the hustle and bustle of the holiday season and we often fail to realize that there are tax-planning moves we can (and should) be making to minimize our tax burden for the year. While it is true that your taxes are not due until April, the amount you will pay (or be refunded) could be largely determined by what you do towards the end of the year. Year End Taxes

Here are four quick and effective ways to improve your tax situation when filing season rolls around in April:

Minimize your Income: By “minimize your income”, we do not mean earn less money. We mean defer as much of your year-end income as possible until next year. This is especially wise if you are on the verge of entering a higher tax bracket. For example, married couples filing jointly will be pushed into the top tax bracket of 39.6% if their income exceeds $457,600. And staying out of that top bracket could mean a savings of several thousand dollars. If you are an employee, you can defer your income directly by asking your boss to hold your bonus check (or even your last paycheck or two) until January. If you are self-employed, wait until January 1 to send out your year-end invoices.

Maximize your IRA/401K Contributions: You should be doing this anyway, especially if your employer matches a percentage of your retirement account contributions. If not, now is the time to increase the amount you place into your IRA or 401K account. The more you place into these accounts (as well as your 529 College Savings accounts), the less taxable income you will have when you file next year.

Give More to Charity: Depending on the type of charity you give to, the IRS allows you to deduct up to 50% of your adjusted gross income (AGI) for these contributions. But even if you exceed the allowable percentage, the excess amount can be carried over to the next tax year. Most of us are nowhere close to reaching the deduction limits, so chances are there is room for you to give something extra this holiday season to your favorite charity. And remember, you can donate items other than cash; such as old cars, clothes, etc. Just make sure to get a receipt from the place you are donating to.

Make your January Mortgage Payment Early: This is an easy little trick to maximize your deductible home mortgage interest; pay your January mortgage payment on or before December 31. It may not add up to that much, but every little bit helps.

There are several other ways to lower your taxes before the year comes to a close. For a comprehensive listing and to find out which strategies may benefit your individual situation, contact your local accounting firm.

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