7 Year-End Tax Tips: How You Can Save Money
Even though you usually think of April has tax time, the reality is you can prepare and save all year long. Wouldn’t it be nice to worry less about the amount you’re going to pay to dear old Uncle Sam!
2011 is coming to an end and you need to take a look and to make sure you don’t owe more than you need to and that you are paying too much in taxes giving the government a interest free loan. Here is a list of year-end tax tips to help you save on your tax bill.
7 Year-End Tax Tips:
1. Delay your bonus. If you are one of the fortunate people to be receiving a holiday bonus this year, consider asking your boss to pay it to you in January. Deferring this payment will lower your 2011 taxable income.
2. Pay your mortgage early. If you have a mortgage payment, pay January’s bill by December 31st. By doing so you may be able to deduct the interest in your 2011 return. Also, consider paying state and local taxes before the year-end to deduct them as well.
3. Be charitable. If you are thinking about donating to a charity and you have some stocks that have appreciated nicely for you, consider donating your stocks instead of cash. If you have held the stock for more than a year you can avoid paying appreciation and possibly deduct the stock’s full value.
4. Sell mutual funds. If you’re planning to sell out of a mutual fund anytime in the near future, first check to see if it has already made its dividend and capital gains distribution. This usually happens towards the end of the year but if it hasn’t already happened, sell out before it does. By doing so you can avoid paying taxes on those distributions. You may even want to consider selling some funds you would like to keep to avoid distributions, but buy them back after at least 31 days.
5. Take advantage of credits/deductions. If you have children claim them as dependents, and list any education related expenses. If you have been hit with a costly natural disaster there are credits/deductions you may qualify for to help lower your tax bill.
6. Deduct a new loan. Don’t forget to deduct your origination fees and discount points if you borrowed, bought or refinanced. With a refinance you have to spread the deduction out over the life of the loan however, on a second refinance you can deduct all remaining points leftover from the first.
7. Build for retirement. Take advantage of IRAs. You can contribute up to $5,000 per year to a traditional or Roth IRA. Remember, if you are 50 or older you can contribute up to $6,000 per year. If you do qualify for a deduction and you decide to fund an IRA account you’ll notice a decrease in taxes owed. IRA deposits, both traditional and Roth, can be made up until April 17.