First and foremost, it’s not always a bad thing to be in a higher tax bracket. It means you made more money. It’s better to make more money that you can put away in interest bearing accounts, even if that means paying a bit more in taxes.
If you know you made significantly more money this year than you did last year, you may pay more income tax than you estimated.
If you’re on the cusp of an income bracket (you can find this out by taking your estimated income and comparing it to the federal tax table), you can execute some strategic tax actions to move income and deductions out of your taxable income for the year. These strategies may help you save for your future or benefits those in need.
Contribute to retirement plans
Putting money into your traditional IRA, 401(k) plan, or other retirement plan can reduce your taxable income this year. Understand this means that you’ll pay tax on the money when you withdraw it upon retirement; If you’re in a lower tax bracket after you retire, however, you’ll pay far less income tax that way.
Donate Items of Value to Qualifying Charities
Donate any good condition food, unused clothing, apparel, shoes, dishes, furniture, appliances, electronics, tools, and accessories to your local charitable organization. Keep in mind you must donate all items to a qualified organization. Giving money to political organizations and individuals (your broke cousin, Vinny, doesn’t count.)
Avoid selling too many assets in one year
If you cash in on too many of the gains when your stock goes up, the money coming in could boost you into another tax bracket. Instead, sellsome of the shares in one year, and some the next (or as early as January).
If you’ve held a capital asset, such as stock, more than one year, you may qualify for long-term capital gains rates, which are even lower.
Deduct Business Expenses
Self-employed individuals, freelancers, independent contractors, and small business owners may be able to take advantage of certain tax breaks depending on the revenue they’ve earned.
If your small business uses the cash method of accounting, you can claim revenue in the year you receive it, even if you did the work in the previous year.
If your business earned a substantial amount of revenue, you could use some of it to invest in some equipment upgrades or purchase some premiums to give out at your company’s next vendor event. There are over a dozen categories of business expenses that your business may be eligible for.
On the other hand, if you’ve had a slow year and you expect to be in a higher tax bracket next year, you may put off making business expenditures until January 1 or later.