Dealing with the Internal Revenue Service, or IRS, is something everyone has to do at the end of the year. It is important to remember that there are many tricks you could use to help lower what you owe in taxes. Here are a few year-end tax tips that can save you money.
Top Out Your Retirement Savings Accounts
The first tip is to top out your retirement savings accounts. You want to contribute up to the maximum limit for the year. That money will instantly become non-taxable and will not count towards your income. Do this for all your accounts. Be careful, however, to not go over the maximum contribution limit for the year. If you do, then you could be assigned penalties.
Give To a Charity for the Holidays
Consider giving to charities during the holidays. You can donate to causes that you support or make charitable donations in the names of others as holiday gifts. You are able to directly deduct any of the contributions you make up to a certain percentage of your income. You do have to do a little research first. Only qualified charities are eligible. The IRS maintains a list of qualified charities online.
Try Loss Harvesting
Loss harvesting is an old year-end tax strategy for anyone with investments. You are allowed to deduct any losses your investments suffer from your taxable gains. This is a direct one-to-one ratio. The strategy involves selling any of the stocks, mutual funds or other investments in your portfolio that currently show losses for the year. You then deduct the total losses from your gains.
Prepay Some of Your Bills for Next Year
A final strategy is to prepay some of the bills that would technically be due next year. You can pay several things such as property tax, state taxes or medical bills to make a difference. If you pay those bills before the end of the year, then you can deduct them from your current taxes instead of waiting until the end of next year.