If you want to make a move to reduce your tax liability for this year, you only have a couple weeks to make it happen with the right year end tax planning.
The good news is that you still can make a difference in your tax bill before the new year begins. Here are seven strategies you can use to save money, or even boost your refund.
Use these year end tax planning moves
1. Donate to charity
Who doesn’t like the warm fuzzies they feel when they donate money towards a charitable cause? You can do a little good and get a tax break at the same time.
This is one of the easiest ways to save on your taxes if you are eligible to itemize using Schedule A. However, it doesn’t make sense for everyone to itemize, so make sure you consider your financial situation carefully.
Also, remember that you can get a tax deduction for items you donate to a charitable organization, as long as they are in good condition. Just keep all of your receipts for your records.
2. Retirement account contributions
Do you still have some room in your retirement account to make more contributions? If so, and you have a Traditional IRA or 401k, you can get a tax deduction for your contribution.
What’s more, for the 2016 tax year (and 2017, too), you can contribute up to $5,500 in an IRA and $18,000 in a 401k.
Retirement contributions are a staple of year end tax planning — and for good reason. You receive a tax deduction, plus you are preparing for your future.
Your retirement account is ultimately one of the best ways to make the most of your dollars when it comes to building long-term wealth. An extra contribution can reduce your taxable income today, and earn you more money via interest down the road.
3. Put money in your HSA
The Health Savings Account is one of my favorite savings tools. Not only do you get a tax deduction for your contributions, but the money you put in the HSA also grows tax-free. This is truly money that isn’t taxed.
You do need to meet eligibility requirements, including having a high-deductible health care plan. So make sure you run the numbers to see if a health insurance plan with a high deductible makes sense in your financial situation.
If it does, opening the HSA to complement it can go a long way. And, for the 2017 tax year, an individual can contribute $3,350 and a family can contribute $6,750 to an HSA.
4. Tax loss harvesting
In the world of year end tax planning, one of the most-used strategies amongst investors is tax loss harvesting.
Basically, if you sold some investments for a gain you can offset what you earned and reduce your taxes by selling some of your losing investments.
On top of that, if your investment losses exceed your offset gains, it’s possible for you to deduct the extra losses from your “regular” earned income.
The end of the year is a great time to review your investment portfolio. So if you’re concerned that some investments are underperforming, or if the fundamentals have changed, it makes sense to unload the losers. You might as well get a tax break while you’re doing it, too.
5. Prepay on your mortgage
If you itemize, you might be eligible for a mortgage interest tax deduction. You can also get a deduction for what you pay in property taxes.
Of course, you probably have an automatic payment made each month, and you’ll get your deduction for those payments.
But did you know you can pay ahead? That’s right. If you want to take a little extra off on your taxes, take a moment to make January’s mortgage payment before the end of December.
You can deduct what you pay both on interest and on the property tax portions of your mortgage payment. You get ahead on your bills and see a tax advantage.
6. Home improvements
Your arsenal of year end tax strategies isn’t complete without home improvements.
If you’ve been planning to do a little remodeling, see if you can get a home equity loan or line of credit. Any interest or points you pay might be tax-deductible.
Be careful, though. You don’t want to go overboard with your home improvement loan.
Another way to make home improvements and get a tax break might be to install a renewable energy system. Tax credits for renewable energy systems like geothermal, wind, and solar are set to expire at the end of 2016.
If you’ve been thinking about adding one of these systems, it’s time to make your move. Plus, the fact that it’s a tax credit, and not a deduction, is even better. Your tax credit directly reduces your tax bill on a dollar-per-dollar basis, rather than just reduces your income.
7. Business expenses
Have you been waiting to buy that new office chair? If you buy it before the end of December, it can be a tax deduction.
If you own a business, or if you have a side hustle, you can deduct many of your expenses like equipment, travel, and advertising costs. There are plenty of other costs that you can deduct as well.
Planning to attend a conference in March? Make sure to pay the registration now and pay for your travel arrangements. You’ll get the tax deduction today, and not have to worry about paying for the travel later.
Remember, it’s always a good idea to check with a professional as you complete your year end tax planning. And do your homework when looking into strategies for reducing your tax bill.
If you have the resources to make a few moves, you might be able to save a decent amount of money on your tax bill.
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