Tax saving tips for the end of the year
Tax saving tips are mot useful at the end of the year. Whether you have had a successful year or are trying to get back from a financial step back, it is essential to implement end of year tax saving tips. These tips should not be done on December 31st. For them to be most effective, it is important to start them as early as possible. In this article, we review some tax saving tips that could be helpful during this period.
Defer your Income
One of the essential tax saving tips is to defer your income. This method is mostly applicable to self-employed people and people who receive bonuses at the end of the year. Delaying your income to the next year means that that income will be taxed from the following year. If you’re running your own business or consultancy, this would suggest that you delay your payments until the next year. This method helps you pay tax on lower brackets rather than higher ones.
Sell off loser investments
This method is commonly referred to as loss harvesting. It involves selling stocks or mutual funds. These will then be counted as realized losses that can be used to offset taxable gains from the year. This method is highly effective since losses can be transferred from year to year for as long as you live.
Make contributions to your retirement account
Making contributions to your retirement account is ideally the best end of year tax saying tip. Not only do you get to reduce your taxable income, but you also get to contribute to your retirement. Another advantage to contributing significantly to your retirement account is that your company might match your contribution. It is therefore advisable that you contribute the maximum amount which is eighteen thousand or twenty-four thousand for people below or above fifty respectively.
Monitor your flexible spending accounts
Most organizations institute flex plans or flexible spending accounts. These plans offer employees a chance to channel part of their income to a particular account for medical expenses. The good news is that this money is free from income and social security taxes. The disadvantage is that the excess of this money is forfeited at the end of the year. It is crucial to know how much you are contributing and how much you have spent by the end of the year.
Take last-minute tax deductions
Last minute tax deductions are a significant tax avoidance tip. A great way to do this is by donating to charity. This method is even more effective when donating appreciated property or stock. The main advantage is that you get a double tax benefit from the donation. This is applicable through deducting the property’s market value to avoid paying capital gains tax.
Another alternative in this category would be to speed up tax deductions. These deductions might be from property tax bills or hospital bills. It is, however, crucial that you beware of the alternative minimum tax and find out whether you are subject to it.
With the end of year approaching, these tax saving tips will help you make excellent financial decisions.