Believe it or not, saving money on your taxes doesn’t happen when you prepare them this spring. The decisions you make now—before the tax year is over—are what determine how much you’ll owe on next year’s bill. Here are 10 ways to make sure you pay the least possible amount:
1) Be charitable. Charitable donations are a great way to reduce your total tax bill, and donations in the name of loved ones make great gifts for the people who already have everything.
2) Defer your income.
3) Squeeze in a house payment. Make your January house payment on December 31st and get one more month of interest to deduct from your taxes.
4) Bunch your deductions. A tactic that works at least every other year, bunching deductions allows taxpayers the ability to capitalize on expenses that might ordinarily fall beneath the deduction threshold.
5) Pay education forward. Thanks to the American Opportunity Tax Credit, you can get up to $2,400 in tax credit for tuition, fees, and course materials related to undergraduate expenses. Pay your Spring Semester early, and that money becomes yours that much more quickly.
6) Beef up your 401(k). Most companies allow you to change your 401(k) contributions at any time, and now is a great time to add to your retirement investment tax-free. Increasing your 401(k) contributions will reduce the amount of taxable income the IRS can get its hands on.
7) Contribute to an IRA. Whether you already have one or need to set one up, you might be able to deduct some of your IRA contributions on your return. Even if you can’t deduct it, it’s always a good time to fund your retirement.
8) Deplete your FSA accounts. Like 401(k)s, flexible spending accounts (FSA) are a great way to pay for medical expenses while reducing your taxable income. Unlike a 401(k), however, if you don’t use these funds by the time allotted, they are gone forever. Review the amount of your FSA to make sure you are able to completely deplete it each year.
9) Adjust your payroll withholding. It’s sometimes hard to find the magic “withholding number” when we estimate our tax responsibility. Take too much out and we let Uncle Sam use our money throughout the year when we could use it; take too little, and we fail to budget properly when we end up owing taxes. The goal is to get a refund, but only a small one. This ensures you are the one controlling the bulk of your money throughout the year, not the government.
10) Wait to split. “Married filing jointly” with taxes is usually the most tax-effective way to file. If your divorce is in its final stages at the end of the year, try to make the court date in January. The IRS cares very little about the status of your relationship, except that whatever you were on December 31st—married or divorced—is the only status you can claim for that entire year.
With multiple CPAs, Busey Wealth Management can build tax-aware investment portfolios and determine appropriate tax efficient gifting and distribution strategies. Contact us, visit any Busey location or call 1.800.67 l Busey today.
Investing involves risk and you may incur a profit or loss regardless of strategy selected. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision. You should discuss any tax or legal matters with the appropriate professional.
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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Busey Investment Services and not necessarily those of Raymond James. The information has been obtained from sources conserved to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.