The year is finally ending and we are all preparing new resolutions for the coming year and one major resolution is always to save money and manage finances well. One way to do that is to take advantage of the tax saving proposals available before the New Year.
Best of Tax Saving Tips
- First tip is to still maintain your investment position and recognize stock losses.
- Second tip is to pay tax tomorrow, if you can, rather than today. This is by deferring your standard year end bonuses into the following year so long as your company practices that. This is due to income is taxed usually in the year that it has been received.
- In addition to deferring your income it would be wise as a third tip is to reduce your tax bill by increasing your deductions as well before the following year.
- A great way to do that is by getting involved in a charity. That gives you a deduction and also you determine the time of the deduction. The fourth tip is also being aware that tax deductions can also cost you money if you plan on accelerating them. This applies to people who are in the alternative minimum tax bracket.
- The AMT, alternative minimum tax was originally to prevent wealthy people from using legal deductions to reduce their tax bill though now it is increasingly reaching the middle class. Fifth great tip is that tax deferred retirement accounts can grow and compound over time to a huge sum free form taxes and can be a great investment.
- The suitable deals would be the sponsored 401k plans where the sum is usually matched by the employers. Sixth tip be aware of your flex plans or flexible spending accounts. These involve redirecting part of your income into a specific account that can be used later to pay medical bills or for child care. The benefit of this is that this money avoids social security tax and income tax. However if you do not use it before the end of the year you may loose your investment hence it would be good to check if it has been used and if not do like most people common in this situation and use it quick.
- Seventh tip is to try and avoid the kiddie tax which taxes a child’s investment income above 2100 which is above the parents rate until they are 19. So be careful if you want to the kiddie tax.
- Eighth and last tip, for deductible expenses it is better to use your credit card. This if done before the end of the year will increase your end year deductions.