Savvy End-of-Year Tax Tips

The end of the year is fast approaching, and you may be wondering what you can do between now and New Year’s Eve to save yourself some money come April 15th. Here are some tips on ways you can keep more of your hard-earned money.

Donate to Charity.

Any money you donate between now and the end of the year is tax-deductible, provided that you itemize deductions. Turbo Tax has a tool to help assign values to non-cash donations like clothes. Remember that if you donate more than $250 you will need a written acknowledgement from the charity in order to deduct your donation.

Convert Your Traditional IRA to a Roth IRA.

This is a good idea if you anticipate an increase in income that will put you into a higher tax bracket. While withdrawals from a traditional IRA are taxed at your regular rate, withdrawals from a Roth IRA are tax-free as long as the converted account has been open at least five years and you are at least 59.5 years old at the time of the withdrawal.

Max out Your Contribution to Your 401(k).

Money you put into your 401(k) is not taxed, so if you have not already contributed the maximum amount now is a good time to do it. If you get a year-end bonus you can put all or part of it into your 401(k) and then deduct it from your income on your tax return.

Boost Your Withholding.

If you expect to end up owing money, you can boost your withholding now to avoid an underpayment penalty. As long as you pay 90% of the current year’s estimated taxes, you will be off the hook for a penalty. Another option is to prepay 100% of last year’s liability. Either move will save you from paying a penalty.

Maximize Deductions.

If you anticipate a drop in income in 2015, it may be worthwhile to maximize deductions now by paying deductible expenses like your January mortgage or 2015 property taxes now. Conversely, you may be better off waiting if you expect your income to rise. The deductions will be more valuable when your income is higher. However, if you are a candidate for the Alternative Minimum Tax some of these deductions may not be allowed, so check first.

Defer Billings.

If your employer will let you, defer payment of some of your salary or year-end bonus to 2015. If you’re a freelancer or self-employed, postpone billing until after the first of the year. However, if you anticipate being in a higher income bracket in 2015, accelerate billing so you can pay less next year.

Harvest Your Losses.

If you have stocks or funds that have lost money in 2014, cash them out now and use the losses to offset gains in other areas. If you do this, beware the wash-sale rule which prohibits deductions against losses if you make the same or a similar purchase when 30 days of the sale.

Check Your Flexible Spending Account.

Some companies have adopted a roll-over rule that allows you to carry up to $500 through March 31, 2015. If your company hasn’t – or if you have more than $500 accrued – now is the time to make a trip to the dentist, optometrist or pharmacy to spend those tax-free dollars.

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