Smart moves for lowering your tax bill before New Year’s Eve

• How to lower your taxes.
• Last-minutes steps you can take.
• Get ready for a new tax year now!

As the year winds down, it’s an ideal time to explore various ways to reduce your tax bill.

This is a crucial time to ensure that you’re taking full advantage of tax benefits and deductions.

Engaging in smart tax planning before New Year’s Eve can lead to significant savings, allowing you to enter the new year with a better financial position.

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Maximize your retirement contributions

Contributing to your retirement accounts, like a traditional IRA or a 401(k), is one of the most straightforward ways to decrease your taxable income

These contributions are tax-deductible, meaning they reduce the amount of your taxable income.

If you haven’t yet hit your contribution limit for the year, making an additional deposit before December 31 can be a wise move.

Not only does this strategy reduce your current tax bill, but it also strengthens your retirement savings, securing your financial future.

How to lower your taxes with charitable donations

Charitable giving is not just a way to give back to the community but also an effective method to lower your tax bill.

Donations to qualified non-profit organizations are tax-deductible if you itemize your deductions.

Make sure to document your donations properly with receipts or acknowledgment letters from the charity.

This approach not only helps those in need but also strategically reduces your taxable income, making it a beneficial move for both you and the recipients of your generosity.

Prepay expenses to increase deductions

Prepaying certain expenses can provide a significant tax advantage.

For homeowners, paying your January mortgage in December allows you to claim that interest deduction in the current tax year.

Similarly, if you’re self-employed, paying upcoming bills such as utilities or rent for your business space can boost your business expense deductions.

This tactic requires a bit of financial foresight but can lead to considerable savings on your bill.

Educational tax credits are a smart way to save

For families with educational expenses, taking advantage of educational tax credits like the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC) can be a smart move.

These credits can reduce the amount you owe and are available for qualifying educational expenses, including tuition and related expenses.

Make sure to keep all receipts and records of your educational expenditures.

Leveraging these credits can significantly reduce your liability while supporting educational aspirations.

Invest in energy-efficient home improvements to lower your taxes

Homeowners can also take advantage of tax credits for making energy-efficient improvements to their homes.

These upgrades, such as installing solar panels or energy-efficient windows, can qualify for federal tax credits, reducing your bill.

Not only do these improvements offer savings, but they also contribute to lower utility bills and a reduced environmental footprint.

Before making any upgrades, research the specific credits available and ensure your improvements qualify.

Contribute to a Health Savings Account (HSA)

For those with high-deductible health plans, contributing to a Health Savings Account (HSA) can offer both health and financial benefits.

Contributions to an HSA are tax-deductible, and withdrawals for qualified medical expenses are tax-free, making it a dual-benefit financial tool.

By maximizing your HSA contributions before the year’s end, you can lower your taxable income while saving for future health expenses.

This strategy is especially valuable for those anticipating significant medical costs in the future.

Defer income to reduce your current tax burden

If you anticipate being in a lower tax bracket next year, deferring income to the following year can be a smart strategy.

This might involve delaying year-end bonuses or postponing invoices until after January 1st.

Deferring income can be particularly beneficial if you expect a decrease in earnings or a change in your situation in the upcoming year.

By strategically managing the timing of your income, you can effectively control your tax burden.