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7 End of Year Tax Strategies That Can Save You Money

It’s tax time! No, it’s not April 15th and you are not the subject of a time travel experiment gone wrong. But if you are one of the millions of taxpayers who expects to owe and wants to minimize your tax bill, or you want to maximize your refund, the time to think about taxes is before the end of the year. The fact of the matter is that once January 1st rolls around, your accountant’s hands are pretty much tied in terms of finding ways to lower your tax burden. The good news is there are things you can do now that can save you money when it’s time to file.

Find out now: How does my 401(k) work?

Check Your Stubs

If a large check was part of your income tax filing last year either as a refund or payment, you should take a closer look at what is being withheld from your pay. Ideally, this is something that you should’ve done months ago, but better late than never. Making a change in the closing months of the year may not be enough to mitigate your entire over- or underpayment, but it will certainly help. Plus, it will ensure that you’re on the right track for next year.

Feed Your 401(k)

Unlike with IRAs, contributions to your 401(k) have to be made before the end of the year (December 31st) in order to affect your tax liability. Since 401(k) contributions are made from pre-tax earnings, they provide a dollar-for-dollar reduction in your taxable income. You can contribute up to $17,500 tax-free per year up to age 50. If you are over 50, the annual limit increases to $23,000. Those limits are per person, which means married couples can double those amounts.

Defer Income

Look at your income for the year and if you are close to crossing into a higher tax bracket, consider asking if some of your income can be deferred until next year. This is a particularly good strategy if you’re expecting an end-of-year bonus that will move you into a higher bracket. Asking your employer to pay your bonus at the start of next year can save you thousands in taxes and provide you with 12 full months to develop strategies next year.

The 2014 tax brackets for married taxpayers filing jointly are:

Taxable Income*

Tax Rate

Less than $18,150

10%

$18,150 –  $73,800

15%

$73,800 – $148,850

25%

$148,850 – $226,850

28%

$226,850 – $405,100

33%

$405,100 – $457,600

35%

Over $457,600

39.6%

*Income levels for each tax bracket for single and head of household filers are lower.

What to Do if You Miss the Tax Filing Deadline

Pay It Forward

As the holidays approach and gift giving is on your mind, consider increasing your charitable contributions as well. Tax-deductible charitable contributions are not limited to cash payments. You can donate clothes or household goods, and even cars and boats can be considered donations.

Home Improvements

Residential tax credits for energy-efficient improvements can reduce your tax bill by hundreds of dollars. So if you’re considering a new energy-efficient hot water system, new roof or furnace, now may be the best time to have the work done.

FSA Contributions

Flexible Spending Account payroll deductions may now be capped at $2,500, but that is no reason not to consider making the maximum contribution for the year. Like with your 401(k), deductions from your pay are done on a pre-tax basis, reducing your taxable income. There is a significant catch here, though, and it’s that you have to spend the money you contribute on qualified health care expenses before the end of the year or risk losing your contribution. You can roll over up to $500 of your account balance to next year.

4 Things to Know About the Tax Extension Deadline

College Expenses

Whether the expenses are yours or one of your dependents’, paying all or part of your spring semester bill early will give you the deduction for this year’s return. Making payments for the spring now makes you eligible for the American Opportunity Credit for this year, even if the eligible student does not begin classes until the spring.

Photo credit: flickr

Frank Addessi Born and raised in the center of the known universe, Brooklyn NY, and currently hiding out in the bucolic hills of northeast Pennsylvania writing about personal finance. His expertise includes personal loans, credit cards and retirement. It's not easy living the American Dream but someone has to do it!
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