Before December 31 arrives, there is still time to take advantage of a few tax saving strategies! Check out 5 tax tips below.
1. Defer Income
Your income is taxed the year you receive it. If you’re able, you may want to consider postponing some of your salary or even a year-end bonus into the next year if your company allows it. The point? There’s no need to pay taxes now if you can pay them later. The money is in your pocket longer. If you decide to defer income, make sure you will be in the same or lower tax bracket next year.
2. Charitable Giving
Donating to charities is a popular way to get a tax deduction. Keep a record of all your contributions (regardless of the amount) and ensure that you have receipts from all organizations.
3. Health Expenses
Take advantage of pre-tax savings plans like flexible spending accounts (FSA) and health savings accounts (HSA) to pay for out-of-pocket medical expenses. If you have an FSA, try to schedule qualified expenses before the end of the year, otherwise you’ll lose the excess money in the account. If you have an HSA, there are no use it or lose it rules, so try to save as much as possible per year. With an HSA, you may also be able to save the money in investment products to grow tax-free investment income.
4. Prepay Spring Tuition
5. Increase Contributions
If you have education costs, you can deduct up to $4,000 from your taxable income through tuition payments. Prepaying spring tuition is especially helpful for those who just started college in the fall and are under the $4,000 threshold, but will be starting again in January.
If possible, try to increase your 401(k) contribution to the maximum allowed ($18,000 for 2015, $24,000 if you are age 50 or over). If you can’t reach the maximum, consider at least contributing the full amount your employer will match. You may also want to contribute to an IRA. This will help reduce your taxable income for the year.
The above is not intended to be tax advice, was not written by a tax professional and is informational only. Please consult a tax advisor for your specific situation.