Your end of the year to-do list may be long with parties, shopping and surviving the holiday season – but consider taking a look at what you can do to make your 2013 tax bill smaller. There are some things you can do this December to decrease your tax liability and help you get a larger refund. All of the items on this list may not fit every tax situation, so see which ones might work for you.
1. Giving is better than Receiving: Tax Deductible Charitable Donations
The holiday season, especially, is a time of year where gift-giving and charitable commitments come to the forefront of our lives. For your charitable donations to be considered tax-deductible, they must be made to a qualified tax-exempt organization and claimed as itemized deductions on your tax return. Not sure of the value of some of your donated items? You can use the Salvation Army donation guide to estimate the values of your used household items or clothing.
2. Maximize Your Retirement Plan Contributions
Check to see if you have contributed the maximum amount to you 401(k) . If you have not contributed to the maximum amount, consider increasing your contributions for the rest of the year. 401(k) contributions are made pre-tax, which reduces your taxable income potentially reducing the amount of taxes due. Also, if you are eligible to deduct IRA contributions , you can make traditional IRA contributions to decrease your taxable income.
3. Defer Your Income
I know what you are thinking- money is tight this time of year. It may be tough for you to postpone wage and salary income, but you may be able to defer a year-end bonus until next year. You can defer year-end bonuses as long as it is standard practice for your company to pay year-end bonuses the following year. Remember though, it would only make sense to defer your income if you think you will be in the same or lower tax bracket next year. You do not want the income you defer to push you into a higher tax bracket next year.
4. Pay Some of Your 2014 Bills Early
If you have some extra money this holiday season, you may want to consider pre-paying expenses to ensure you take full advantage of some tax breaks, especially those due to expire this year . The higher education tuition deduction , which allows folks to deduct between $2,000 and $4,000 of qualified tuition costs, was retroactively restored for 2012 and will expire at the end of 2013. Those who have not met the maximum amount of the higher education tuition deduction should consider paying spring college tuition now to get the maximum deduction. Or make an additional student loan payment to claim the highest possible interest deduction .
Remember every tax situation is different, so find what you can do for your specific situation to reduce your tax liability. Let us know if we can help with any question you may have about your specific situation.