For most, the end of the year is a pleasant time. Halloween is behind us, Thanksgiving and all the fun celebratory holidays are just around the corner.
It’s a time to reflect on the year and get ourselves ready for the next.
It’s also the perfect time, especially now before the rush of the holidays, to give some thought to your taxes. When the calendar year ends, so do many of the things you can do to reduce your tax burden come April.
Here are a few end of year tax tips to maximize your tax refund while you still can.
Donations, Donations, Donations
If you itemize your deductions, the quickest way to get a refund is to donate to a worthy charity. Your donation can be in the form of cash or goods. Do you have furniture that you no longer want? Clothing that no longer fits? Perhaps even a car, boat, or RV? Donate it to a local charitable organization and get a nice tax deduction, depending on the market value of the products. The key is to always get a receipt to support your donations.
You can also donate your time. That won’t be eligible for a tax deduction, but your mileage to get there may be. TurboTax ItsDeductible will track and value all of your donations and your mileage.
Another great way to reduce your tax burden while planning for the future is to make a contribution to your retirement savings account. Whether you contribute to a 401(k) or a Traditional IRA, you can take a dollar for dollar reduction in your income and also save for the future. The contribution limit for 401(k)s for 2014 is $17,500 and for a Traditional IRA it’s $5,500, with a higher limit for those aged 50+.
To do this, contact your company’s HR department or your IRA custodian. While you’re at it, you can also increase contributions for next year as well. The limits for the 401(k) will be going up by $500. No similar increase in the contribution limit for a Traditional IRA though.
Accelerate Deductions, Defer Income
There are a handful of deductions that are recognized the year in which you spend them. For example, you get a mortgage interest deduction and if you make an extra mortgage payment on December 31st, you can claim that tax deduction on this year’s taxes. This lets you take the deduction immediately rather than wait an additional 12 months. Spend some time now to think of any deductible expenses you may be able to pay in advance.
On the other hand, if collecting your year-end bonus bumps you up to the next tax bracket, then holding off on collecting that income may be in your best interest. If you are due a bonus ask your employer to pay it out on January 1st rather than December 31st. By waiting an extra day, you can wait an entire year to pay.
Harvest Investment Losses
Chances are you have a few investments in your portfolio that have gone down in value, you can recognize those paper losses and use it to offset investment winners. In order to take advantage of this, you will need to sell the losses and lock them in to use them against any winners you’ve recognized. If your losses exceed your gains, you can apply up to $3,000 of losses against your regular income. Any extra will then be passed onto the next tax year.
With a few shrewd moves before the end of the year, you can reduce your tax burden, increase your tax refund, and set yourself up for a financially strong new year!