Year-End Tax Tips—Start Early
Year-End Tax Tips—Start Early
As you manage your taxes at year-end, one important, constant goal should be to reduce your adjusted gross income (AGI), which equals your gross income (salary, investment earnings, etc.) less your allowable deductions and exemptions. Maximizing your deductions and exemptions, as well as taking advantage of any tax credits available to you, is a great way to start thinking about saving money on your next tax bill.
Maximize your 401(k). A 401(k) plan has a maximum contribution amount, which limits your annual contribution. However, if your contributions have fallen short for the year, some plans will allow you to “catch up” at year-end. Not only can this help you save on taxable income, but also if your employer matches a portion of your contributions, then you will benefit in two ways.
Individual Retirement Accounts (IRAs). You may invest in your IRA for tax year 2014 until the tax filing deadline in 2015. Contributions are limited to $5,500 or $6,500 if you are over the age of 50.
Charitable donations. If you are considering giving a cash donation to a charity during the tax year, you must give it or mail it by December 31. You will be eligible for the deduction as long as the donation was made by the end of the year. Appreciated stocks that you have owned for over a year can also be donated to charity. If you do so, you will not owe taxes on the appreciation, and you will be entitled to deduct the expense of the stock from your taxes. If you wish to maintain ownership, the charity may be able to assist you in buying new shares.
Devalued stock. If you own stock that has lost value, you may be able to claim a capital loss. However, the Internal Revenue Service (IRS) has specific rules for what may qualify as a loss. Deductible losses can equalize any realized gains and up to $3,000 of income.
Charge it. Any year-end deductible expenses, such as those for unreimbursed business-related expenses, can be charged to a credit card. According to the IRS, you are allowed to deduct expenses that occurred within the taxable year, which means that you can take advantage of the deduction this year and, if need be, pay off the card next year. Many charities also accept donations by credit card, which would further your ability to make a tax-deductible charitable donation.
Prepay. If the alternative minimum tax (AMT) does not apply to you, and you are sure that your tax bracket has remained the same, consider prepaying your state and local taxes. Prepaying these taxes before the end of the year will enable you to claim a credit on the amount when you file.
You have until December 31 to get a head start on year-end planning. If you plan to itemize your deductions, then fulfill your promise to yourself and take action. Following these year-end deduction tips can benefit a charity or your retirement savings, while making your taxes a little less taxing.
Copyright © 2013 Liberty Publishing, Inc. All Rights Reserved.