You might have noticed that it’s just about December. It you have been putting off some of your financial planning to this point, it’s time to get into gear — especially if you are trying to improve your tax liability. It’s time to do a quick survey of your options, and figure out how you can squeeze in a few more tax breaks. It might even be worth it, if you have someone else prepare your taxes, to find out what, exactly, you are eligible for.
Ideas for Reducing Tax Liability
There are a few things you can do to reduce your tax liability if you have extra money to put toward various accounts and causes:
- Donate: Now is a great time to donate. You can donate money to your church, or to a charity. Make sure that your contributions are tax-deductible, though, and get a receipt. Even if you don’t donate money, you can get a tax deduction for your stuff. Round up your unused items (they need to be in good condition), and take them to a charity or donate to a thrift store. Get a receipt, and deduct the market value of your goods from your income.
- Retirement account contribution: If you haven’t maxed out your 401(k) contribution, now is a great time to put a little more away. Reduce your taxable income, and prepare yourself better for the future, with a little bonus for your retirement account.
- Business tax deductions: When you are self-employed, you have the opportunity to deduct expenses related to your business. From travel, to office supplies, to the business use of your home, you have the option to make a few deductions.
Do you have some investment losses? If so, you can offset capital gains you had earlier in the year. Still have losses left over? Or no capital gains to offset? It’s possible for your to reduce your income by up to $3,000. So, if you have some losers dragging down your portfolio, and you’ve been thinking about selling them anyway, it might be worth it to make the most of the situation and use it as a way to reduce your taxable income.
IRAs and HSAs
It is worth noting that IRA and HSA contributions don’t have to be made by the end of the calendar year. You might want to wait and see where you stand before deciding to contribute to your IRA and/or HSA. You can contribute until April 15th of the following year. So, for a 2011 tax year contribution, you have until April 15, 2012 to contribute. Make sure, though, that when you contribute you designate which year the contribution belongs in. Many people wait until they get all their tax documentation together, and then see if a Traditional IRA or a HSA contribution might help them pay less through a tax deduction.
There are plenty of legal ways to pay less in taxes. With the proper planning, the moves you make now, before the end of the year, can help you keep more of your money, putting it to a use that you approve of.