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End of the Year Tax Tips
Donate to charity. It pays to be charitable,
especially at the end of the year. Donating cash to the charity of your choice
is always smart, but you can also donate clothing, household products, and other
items. Under the Pension Protection Act, you will need a written receipt for
all charitable donations, and donated items must be in good or better
condition. You can also deduct the cost of driving for charity at 14 cents per
mile. And remember you can only deduct tangible goods; time volunteering
does not count.
Pay your property taxes. Real
estate taxes are tax deductible. If your property tax bill is due early next
year, you might consider paying it now and take the deduction.
Make an extra mortgage payment. Similar
to the previous property tax tip, you may want to consider paying your mortgage
payment forward.The extra
interest you pay will be added to this year's mortgage interest by your lender, boosting
your itemized deductions. Make sure to confirm with your lender that your
payment will be credited as paid in the current year and not the next.
Boost business expenses.
Business owners and independent contractors can invest in new equipment, buy
office supplies, or pay bonuses to their employees. They should also review
their retirement plans or decide about setting up a retirement plan. Many
retirement plans need to be established by the end of the year if owners want
to make tax-deductible contributions for the year. Just to be sure, review what
constitutes a legitimate business expense to make sure what you are
purchasing is tax deductible.
Max out your retirement savings.
Contributions to a retirement plan reduce your taxable income.
Sell losing investments to
offset capital gains. Investors can lower their
capital gains taxes by selling securities that have lost money. Losses offset
gains dollar for dollar, and losses in excess of your gains can be deducted, up
to $3,000 per year. Investors with significant capital losses might want to
reverse this strategy and sell off capital gains as a way to use up
their losses.
Wait to invest until after the ex-dividend date. Avoid
buying mutual funds held in taxable accounts until after their ex-dividend
date. You'll avoid paying capital gains tax on the dividend. Conversely,
investors with significant losses might not need to worry about buying into
capital gains distributions, as they could be utilized to use up losses.
