Let’s take a look at several year end tax tips that you can employ over the coming weeks.
1. Assemble your records. Review your tax records and receipts for what you done so far this year. Does it accurately reflect what you have spent and have you paid all your taxes on time and in full? It is easy to miss out on something because you were busy, but it isn’t an excuse that your tax agency (IRS) will forgive. Remember, fourth quarter taxes are due on Jan. 15.
2. Make a donation. Donations that are made in this calendar year can help offset your taxes. Donations are particularly useful if you itemize your tax return. Besides financial gifts (always write out a check or make a credit card donation to track your donation) you can make gifts of clothing, household items and other gifts in kind. Obtain receipts for your donations made to a qualified charity as you will need these come tax time.
3. Defer your income. For high net worth individuals, you’ll pay more in taxes this year than last. Certain Bush-era tax cuts were ended and that means you’ll be owing Uncle Sam more money than you did previously. You may be able to avoid a larger hit by deferring some of your remaining income for this year to next year. If you are self-employed, that can mean sending bills to clients after Jan. 1. Consider this option if you expect your income to fall next year, your deductible expenses to climb, or both.
4. Purchase equipment and supplies. If you were planning to purchase equipment early next year, consider moving that purchase up to this year if you expect to take a big tax hit. You can do the same with office supplies, replenishing your inventory before the year ends. Save receipts and as far as your equipment goes, talk with your accountant on how to best depreciate the expense.
5. Contribute to your retirement account. One significant way to save on taxes is to contribute to your retirement account. If you don’t have an IRA account, then open one. If you do have an account, make a contribution of up to $5,500 or $6,500 if you are 50 or older. Consider also upping your 401(k) contribution to its maximum amount. In both cases you can defer taxable income to a later date when your income is lower such as once you retire.
Tax Reduction Considerations
There may be other tax savings peculiar to your state, profession or tax status that only your accountant can advise you. For instance, if you own shares in a money losing enterprise you may be advised to cut your losses and to sell now. Your accountant can show you how declaring those losses might ease your tax burden.
See Also — 5 Tax Tips for Small Business Operators
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