As the year winds down to a close and Holiday cheer is in the air, the last thing you probably want to think about is your taxes. Matter of fact, it’s probably safe to say that you rarely ever want to think about your taxes!
However, this may be a great time to start implementing last minute tax strategies to help maximize your deductions for this year which could ultimately help reduce your upcoming taxes. Now of course I would always advise that you consult with your accountant or CPA but consider these three strategies to help your bottom line.
1.DECIDE ON DEDUCTIONS: A lot of people don’t realize that you can actually load up on deductible expenses in December to reduce your taxable income for the year. This is true especially if you have income from self-employment or own a small business.
Once again the key is knowing where you are right now and ensuring that you include only legitimate deductions, to avoid scrutiny by the IRS. Doing things like prepaying your taxes, which will count as a federal deduction, could help your bottom line. There are several deductions to consider but here are a few common ones.
You could contribute as much as you can to your 401(k) or other tax-deferred retirement plans will not only help you increase your savings for retirement but also cut your taxes. You could also pay your January mortgage bill early to include additional mortgage interest, which is a deductible expense.
2. CHOOSE A CHARITY: The holidays are a time for giving so why not support your heart and your wallet? Take advantage of a true season of giving by donating to your favorite charity.
Donating before the first of January allows you to deduct this contribution on your upcoming tax return.You donate, furniture, accessories, money or even investments to a charity, which will allow you to deduct the entire value of that investment and avoid paying any tax on the appreciation amount.
I know for most people this feels a little unauthentic and less genuine but if you are giving with the right spirit then make it work to your advantage.
3. DELAY YOUR DOUGH: Okay, I know this one sounds crazy because who in their right mind wants to delay or defer some of their income until next year? Well, that’s exactly what people do when they are on the cusp of being pushed into another tax bracket for the year.
Minimizing your income is one way that you can save money when you file your taxes. Are there opportunities for you to delay/defer income? Maybe your have 1099 income that you can receive in the first week of January instead of the last week of December. Or, you have clients that you could possibly negotiate payment in January?
Do you know your tax bracket and currently W2 income to date? Once you have that information then this strategy becomes more viable and can make a big difference in your tax bill.
Maybe these strategies are nothing new for you or they are not options for your particular financial situation. No problem, just know that these are just a few to consider. The key is to connect with a professional and get the best strategies to incorporate.
The key is to keep searching for tips and techniques as you approach the end of the year and prepare to file your taxes, and you may be able to come out ahead at tax time which is always something worth making a toast too!
Shawn Dorrough – The WealthShift Strategist