With the holidays in the rear view mirror, most of us are focused on sticking to our New Year’s resolutions. The close of the year is also the ideal time to take actions that could lower your tax bill.
Here are 10 quick and easy tips you should make before the end of the year to increase your tax refund when you file next year.
1. Gather forms and receipts.
It may seem a little early, but gathering receipts for tax-deductible expenses and sources of income for the past year will keep you organized and ensure you don’t forget anything when you sit down to do your taxes.
2. Defer bonuses.
All of your hard work paid off this year, and you are expecting a year-end bonus, but this extra money in your pocket may bump you up to a higher tax bracket and increase your tax liability. If you can hold off on receiving that extra income this year, see if your employer will pay your bonus in January. You will still receive it close to year-end, but you won’t have to pay taxes on it when you file your 2015 taxes.
3. Donate to charity.
The holidays are a great time to get organized for the new year and clean out clothes and household goods while giving to those in need. You can help someone in need and reap benefits of a tax deduction for donations to a qualified charitable organization by Dec. 31. Even if you make a donation by credit card, you do not have to pay it off in 2015 to receive the tax deduction. Don’t forget that you can deduct your mileage (14 cents for every mile) driven to do charitable service if you volunteer at a qualified charitable organization.
4. Take a class.
If you take a course to advance your career you may not only see a boost in your salary, but you may also boost your tax refund. Paying for next quarter’s tuition by Dec. 31 may give you a valuable tax credit up to $2,000 with the Lifetime Learning Credit.
5. Maximize your retirement.
Another great way to reduce your taxable income and build your nest egg is to make a contribution to your retirement savings account. Whether you contribute to a 401(k) or a traditional IRA, you can take a dollar-for-dollar deduction in your income and also save for the future. The 2015 contribution limit for 401(k)s is $18,000 (or $24,000 if over age 50) and $5,500 (or $6,500 if over age 50) for a traditional IRA. The contribution deadline for 401(k)s is Dec. 31, but you have until April 18, 2016 to put money in your IRA.
6. Take the saver’s credit.
The saver’s credit, also known as the Retirement Savings Contribution Credit, is a special tax break available for low- to moderate-income earners who contribute to their retirement plans. The credit is up to $1,000 ($2,000 if you’re married filing jointly), and you can claim it in addition to your tax deductions for a traditional 401(k) or IRA contribution.
7. Spend your FSA.
If you have a flexible spending account and you have money remaining in it, now is the time to take care of those doctor’s visits you’ve been putting off. If you have unused money in your FSA account on Dec. 31, you may only be able to carry over up to $500 into your 2016 FSA. Depending on your plan, there may be a grace period to use your funds in the beginning of next year.
(Continued on next page)