I know it is the end of the year and taxes are the last thing on your mind. But this is a great time to make last-minute changes to ensure you are not paying Uncle Sam more than you need to next year.
As the year winds down, you may be thinking there is no time left to reduce your tax bill. However, the following year-end tax-saving strategies can make certain you keep every dollar you deserve.
Boost your retirement
Have a few dollars lying around? If you are employed or self-employed, you may be able to contribute to an individual retirement account, or IRA. A traditional IRA not only provides the opportunity to save for retirement, but allows you to deduct contributions on your personal federal tax return. Generally, you can deduct up to $5,000 ($6,000 if you are age 50 or older) or up to your taxable compensation, whichever is smaller.
Also, consider changing your contribution allocation to your employer-sponsored retirement plan, such as a 401(k) or 403(b) plan. You can do so now and make bigger contributions for the last pay periods of the year. You are allowed to contribute up to $17,000 during the year, so consider boosting those contributions if you have not yet hit that ceiling.
Be a cheerful giver
Just as the old saying goes, it is better to give than to receive. And it is even better if you can get a tax deduction for it!
Consider giving to your favorite charity, alma mater or any other qualified organization. Donations made before the end of the year may qualify for a tax deduction. But be careful — make certain you are donating to a qualified organization and not your next-door neighbor. The Internal Revenue Service only allows tax deductions for gifts made to qualified organizations.
In addition to monetary donations, donated goods and miles traveled also may qualify for tax purposes.
If you have control over when you receive income, consider deferring your income to the next year. Not everyone has this luxury (or many may not be able to afford it). But if you are self-employed, consider delaying mailing invoices until the following year. Doing so would decrease your tax liability for this year.
Remember: your choice, your future!
Kemberley Washington is a certified public accountant. Follow her on Twitter or subscribe to her blog at kemberley.com.