During the summer months, your personal income taxes may be far from your mind as you contemplate possible travel, vacation time, and lots of outdoor fun. But right now is actually an excellent opportunity to spend time planning ahead for tax season in 2015.
Some people meet with their accountants each January to go over their annual taxes. Before 2014 ends, however, there are several key financial strategies you can use to save money on taxes.
Use the following tax wisdom, and implement these five smart mid-year tax moves to reduce the amount of money you’ll pay Uncle Sam come next April. In fact, by checking these tax moves off your “to do” list, you may even wind up getting a bigger tax refund.
1. Plan your annual donations
During the upcoming back-to-school season—and later, during the holidays—you’ll likely be solicited by co-workers for all kinds of donations, including gifts to their charities, cookies for their kids’ school drives, and money for various fundraisers.
After a while, all these solicitations can really add up. Sometimes, if you don’t have the extra money to donate, it’s best to politely decline. But other times, when you can afford to make a donation, you should make sure you get receipts for your generosity—to help document the tax deduction your contribution will bring.
According to the Association of Fund-Raising Distributors and Suppliers, schools, church groups and sports leagues raise about $1.4 billion annually in merchandise sales. So if someone hits you up for a donation, use the IRS online search tool to double-check that it’s a bona fide 501c3 charity. It’s fine to give to a worthy cause, but you should also be financially savvy about your giving. Only IRS-approved charities are eligible for a tax deduction.
2. Accelerate your expenses
Entrepreneurs should make business purchases, for things like copy machines, printers, faxes or office equipment before December 31 to get a tax deduction for business expenses.
But even if you’re not a business owner, you can accelerate other deductions, like donations you might make to charity or any property taxes you might plan to pay in January. The same is true for things like mortgage interest on your home; by making extra payments now, or anytime before year-end, you can write off the mortgage interest paid and increase your itemized deductions.
3. Delay your income
If your boss or a client is planning to make a fat year-end payment or bonus to you, when possible, try to get that payment on or after January 1, 2015. Delaying payment in this way will reduce your 2014 tax liability.
And does it really matter to your monthly budget if you get a sales bonus or a commission check on December 30 instead of January 1? Probably not. So do yourself a tax favor and get that check next year. By taking the payment in early 2015, the taxes won’t be due until tax season 2016.
4. Dump your losers
Have you been a victim of the lousy stock market? Now’s the time to take your losses. Write off investment losses on your 2014 taxes by selling depreciated shares of individual stocks or mutual funds before January 1, 2015.
5. Contribute to your retirement plan
Socking away more money into your retirement plan, such as a 401k or a 403b plan, can also net you significant savings come tax time.
When you contribute to a qualified retirement plan, you’re putting that money away on a pre-tax basis, thereby lowering your taxable income. So if you haven’t started making those contributions, stop procrastinating and head to your human resources department to get signed up immediately.
If you’re already contributing to your employer-sponsored retirement savings plan, consider boosting your annual contribution levels. Not only will you be doing a smart thing by saving more for your “golden years,” you may also net an additional financial benefit if your employer offers a matching contribution.
By putting these five smart mid-year tax moves into effect now, you’ll help make tax season a lot less taxing next year.