As the end of the year approaches, it’s an excellent time to begin planning for tax season. Being proactive and making smart decisions now can help you reduce your overall tax bill come springtime.
Below we’ll share with you a checklist of measures you can start taking now to significantly lower your taxable income come April, while also reducing the stress of sorting through important information during what can be a hectic time. So let’s dive in!
End Of Year Tax Planning Checklist
Tax season can be an overwhelming process, which is why we’ve created a comprehensive checklist with suggestions to help you get organized and prepared. This checklist is designed to arm you with the knowledge necessary to optimize your financial situation and lower your tax burden.
Gather All Your Receipts
Gathering up all relevant receipts now means being better prepared for tax season and reducing the possibility of costly mistakes or misreported information. By having all your documents organized beforehand, filing taxes will be a far less daunting task.
Consider keeping physical or digital copies of each receipt creating an organized record of expenses that can be easily accessed when it’s time to file. Having a comprehensive list of expenditures makes it much easier to accurately report deductions and to substantiate any financial claims on your tax form, ensuring compliance with the Internal Revenue Service (IRS). This proactive approach can help you save time and money.
Defer Income And Accelerate Deductions
Deferring income and accelerating deductions is a tax-planning strategy that businesses or individuals can choose to use when filing their taxes. Deferring income involves delaying receipt of income until the following year, while accelerating deductions means taking allowable deductions as soon as possible.
Doing so allows you to put off paying taxes on your income for a longer period of time, which in turn provides you more liquidity with your finances. Similarly, accelerating deductions lowers your taxable income for the current tax year, resulting in a lower tax rate due at the end of it. Both strategies can be extremely effective at minimizing taxes owed and ultimately saving money in the long run.
Defer Your Year-End Bonus
Deferring your year-end bonus is a smart tax strategy that can help you keep more of the money you’ve earned, rather than having to pay high taxes all at once. When you defer, you are agreeing with your employer to delay receiving part or all of your bonus until after the start of the new year. This is beneficial because it places your bonus income into the following tax year, meaning any taxes due on that income will be applied to the following year’s filing deadline.
When done correctly, this can help reduce your income in one year and spread out those taxes across two separate years where you may end up paying lower rates overall.
Make A Charitable Donation
Making a year-end charitable donation is a wise tax strategy for many reasons. Charitable donations can be used to lower your taxable income, which can lead to reduced taxes. As long as the charitable organization qualifies under the IRS guidelines, these donations are deductible.
Donating also allows you to support causes you care about while putting some money back in your pocket come tax season. So if you’re looking for creative ways to both reduce your taxes and make a meaningful impact, making a year-end charitable donation is an excellent option.
Contribute To Your Retirement
Contributing to your retirement is a great way to lower your tax burden. Retirement contributions are generally not included in your taxable income, significantly reducing the overall amount of taxes you owe. Also, many employers will match a certain percentage of retirement contributions. Taking advantage of this employer match will increase the amount of money you have saved up for retirement without increasing the amount that you need to pay taxes on.
Retirement contributions can also offer long-term tax benefits since withdrawals are usually taxed as ordinary income rather than at a higher capital gains rate used when investing in other types of assets outside of retirement accounts.
Have Questions About End Of Year Tax Strategies?
If you have questions about end of year tax strategies, our tax professionals at Minton CPA & Associates are ready to assist. Our highly skilled team has years of experience and knowledge in tax planning and preparation, and can provide tailored advice specific to your personal needs.
We have a deep understanding of the ever-changing tax code, and can help to ensure that you comply with all filing requirements and maximize potential savings. Contact us today at 757-546-2870.