It seems that everyone reads about the latest tax-saving tips just prior to filing their returns. At this point, it’s often too late to do much about your pending tax bill. You can, however, start saving on your personal income tax bite during the year and make additional strategic moves as the year-end approaches. Here are some basic tips for saving on your taxes.
1. Keep all business-related receipts: Keep track of what the receipts are for, and save them in a safe place.
2. Claim deductions: Many people neglect to carefully look for, and claim, all the deductions to which they’re entitled. By simply taking the standard deduction, you may miss out on other available deductions.
3. Take all applicable tax credits: For each child under the age of 17, there is up to a $1,000 tax credit. There are also various other credits, such as those available when you adopt a child or when you elect to claim a Lifetime Learning Credit.
4. Take a loss: If you’ve done well with your investments and are looking at significant capital gains, prior to year-end is the time to offset some of those gains by selling a losing venture. Also, remember that you can carry forward up to $3,000 from previous years’ losses.
5. Consider tax-free investments: Returns are not very high, but if you’re looking for a safe, tax-friendly investment, consider tax-free government or municipal bonds, among other such investments. This type of investment is particularly good for a high-income individual.
6. Remember charitable donations: While donations should not be made simply for tax purposes but for philanthropic reasons, you can always make a couple more at the end of the year to lower your tax bite. Remember to get receipts.
7. Gift if you can: You can give up to $13,000 away tax-free to each person you choose. This is typically for retirees with significant assets who want to gift money now rather than leave it for estate taxes later.
8. Max out your retirement plan contributions: Of course, by doing so you’re assuming that your personal income will be lower when you withdraw the money. While that may or may not be the case, it’s safe to say that if there are a number of years until you start taking distributions, the tax laws will likely change many times over between now and then, hopefully in your favor.
9. Put your (older than 14-year-old) children on the payroll: By having them do some work for you, you’ll be able to shift some of your income that would be taxed at a higher rate to their lower tax bracket without being hit with kiddie taxes. Be careful, however, because college financial aid could be affected by their income.
10. Double-check your work: Errors in tax preparation and on tax returns account for millions of dollars that taxpayers could saved every year. Remember to double-check everything.