The IRS and your personal income taxes may be the last things on your mind during the busy December holiday season. But right now—before January 1 arrives—is actually the ideal time to consider some year-end strategies to lower your taxes. Here are three easy ways to cut your tax bill before we usher in the New Year.
1. Write a check to your mortgage lender or local municipality
If you own a home and have a mortgage, you get a tax break for paying property taxes, as well as interest on your home loan. To further enhance those tax benefits, you can pre-pay a property tax bill or make an early payment on your mortgage bill that’s due in January 2014. Doing so by December 31 will give you an added tax deduction for this current tax year.
This strategy obviously works best for those with enough cash flow who can afford to write those extra checks.
But think about it this way: even if you can manage to make a partial, additional payment by the last day of this year, compared with making a payment in January, you’ll reap the financial benefits of that pre-payment when the April 15 tax deadline comes around.
2. Make use of your workplace benefits
Various benefits you get on the job are also tax savers. For instance, contributing to your 401(k) or 403(b) retirement plan nets you a tax deduction. So consider socking away a few extra bucks into those savings accounts by year-end to lower your 2013 tax bill.
Also, don’t forget about the FSA, or flexible spending account, you may have from your workplace. Under the Affordable Care Act, you can make a maximum contribution of $2,500 to these accounts through paycheck withdrawals.
And just like with your 401(k) plan, contributions made to your FSA lower your income taxes.
But you have to be careful because you don’t want to waste FSA funds by losing them if you don’t use this money. So if you haven’t used up all your FSA money, check with your employer to see if they’re among the companies that allow a grace period into the next year to allow you to tap untouched FSA contributions.
3. Make a donation to charity
Since it’s the season of giving anyway, why not consider making a cash gift or a donation of household goods or other items to a charity of your choice? Your generosity will not only help a worthy cause, it will also lower your taxes.
Before giving to just any organization, make sure it’s an IRS-approved non-profit that has bona fide 501c3 tax-exempt status. You can find this out by checking a list maintained by the IRS.
Once you do, simply make a check payable to the organization and mail it on or before December 31. In lieu of a cash contribution, you could take a look at all the stuff in your house, garage or basement, decide which items you really could stand to part with, and donate them. Electronics, toys, clothing, household goods and furniture all make for good donations.
Just be certain to get a receipt for your donation. Don’t simply leave items outside your front door or at a donation drop box (like those maintained by Goodwill or Salvation Army) and never bother getting a receipt. If you’re audited or if the IRS should ever question your claim of a donation, that receipt will come in handy.
Again, no matter how busy you are in the last few weeks of December, take a few moments to do these three easy things to save money on your taxes in the New Year.