Did you know?
The deadline for minimizing your taxes is 31st December.
And not April 15.
I know that most of us are looking forward to the holiday season, now is the time to take advantage of most of the tax breaks.
Here are the top 5 end of the year tax break strategies to help you save on your taxes. Read on and schedule some time to each one of them.
#1 Check Your Tax ID Number for Identity Theft
Prevent someone else from claiming returns for themselves on your behalf.
Since May, the IRS has reported that over 337,000 taxpayers information had been illegally accessed through tax ID numbers. Generally, the intent of any information theft is to use the stolen information (Social Security Number, among other) and attempt to gain early, fraudulent refunds.
Although the IRS has notified the people who may be affected by the breaches, you should protect yourself from identity theft, and prevent any unexpected last moment hustles.
The simplest method is to file your tax returns early. If your return is received before the fraudulent one, the IRS will automatically reject the return notice to the identity thief.
In case you suspect, or have been a victim of theft of your tax ID number, you can receive a separate identity protection PIN (IP PIN) by filing the IRS Form 14039. Visit the IRS Identity Protection for further information.
NOTE: Residents of IRS Pilot Program states (District of Columbia, Georgia, or Florida) can file for an IP PIN even if they do not suspect identity theft.
Finally, remain vary of anyone asking for your personal information during the following months as IRS demands such information through mail.
#2 Leverage Increased Contribution Amounts to Your Tax-Advantaged Savings Plans/Accounts
Traditional 401(k), IRA, and SEP are tax-advantaged plans.
Hence, by planning and making the contributions in advance, you increase the potential for your tax-free earning to grow.
This year, the maximum deductible amount that can be contributed to employer-sponsored 401(k) (or even the 403(b)) has been increased to $18,000 ($24K for 50 and older). Given that all earnings on the contribution are tax deferred, you can gain a hefty amount for the current-year tax break.
You have to act quickly, because unless all your 401(k) contributions have been made before december 31st, you will not be counted for this year. Although waiting longer does increase your deferral rate, it also makes it harder to maximize your savings potential while reducing your take-home pay.
So start contributing to your 401(k), and plan (and if possible, contribute) to the Simplified Employee Pension (SEP) plan now.
#3 Check Your W-4 and Adjust Your Withholdings
You still have time to check, make, and file changes to the W-4 you have on file with your employer. Your goal is to ensure that the money that has been withheld from your paycheck (and which IRS receives in quarterly payments) equals your tax liabilities.
If you employer has withheld very little from your check, you may get a big tax bill next year.
Gain your money back by checking your W-4 today and adjusting your withholdings. In case you have been making quarterly payments yourself, you can easily adjust the payments you will make before December 31st.
#4 File Your 8962
If you are one of the millions of taxpayers who filed Form 8962 last year to reconcile the health insurance credits you received through the Affordable Care Act, and DO NOT have a filing extension lying around, now is high time to do it.
The form was meant to reconcile the difference between estimated credit you have received, and the amount you are eligible for (calculated using your total income at year’s end).
You must reconcile it before the 31st because if it moves into next year, it may jeopardize your premium tax credit.
“But, it’s the IRS’s problem!” I hear you, but the IRS has to hear it from you too. And unless you file the form, nothing will come of it. Delay it, and it will only add to your problems.
#5 Contribute to Charities
Contributing to charitable causes before december 31st is a popular strategy for tax reductions. You have several options for contributing to charitable causes to gain tax reduction.
You can contribute to a charitable cause, and itemize those deductions. Make sure that for every contribution worth $250 and above, you receive a “contemporaneous” written receipt. Furthermore, for contributions below that amount, create and maintain a record of all contributions in the form of receipts, and statements (credit card and bank).
If you have had plans for making a significant contribution to a charity in the form of appreciate stock/mutual fund shares, then gifting them either directly, or through a donor-advised fund can boost your tax return savings.
NOTE: the appreciated assets/securities must be in your portfolio for over an year in which case your charitable-contribution deduction’s value is based on the fair-market value of the securities on the date when it was gifted instead of being the amount you paid for the asset. Additionally, any profits made on those assets/securities will not be tax deductible.
A donor-advised fund is your second option, in case appreciated securities are not accepted by your cause. This fund allows the fund’s administrator to sell the securities and transfer the proceeds to your account. The value of the securities can be deducted from your tax return, giving you the option of deciding where the money will be donated later.
Final Words — Ere the Clock Strikes 12
You still have until December 31st, and by simply scheduling some time to addressing each of the tax strategies above, you are sure to gain a hefty tax refund next year.