Pre-tax deductions from your pay and various contributions can be a definite benefit to lower your tax liability, and we have some bright ideas on how to get it done before the end of the year.
Your tax bracket is based on your taxable income, so by making a few smart and easy tax moves, you may be able to lower your taxable income:
- Donate to qualified 501(c)(3) charities – Remember to get receipts (Helpful tip: receive a gift or item you aren’t sure if you’ll keep or get use out of? Donate it with other helpful items for a late season deduction.)
- Contribute to an IRA through pre-tax contributions can lower your taxable income and provide tax-free growth until retirement.
- Investing in Dividend Reinvestment plans can be a great way to grow your retirement, but make sure you are updating your cost basis for dividends to keep from paying taxes twice.
- Defer Bonus payouts made at the end of the year until next year. If you received a sizable pay increase, this deferment may help keep your taxable income in the lower tax bracket.
- Make an extra mortgage payment to take advantage of the added interest related to the payment – not to mention making 13 payments a year can decrease your mortgage term by 4 years on a 30-year mortgage.
- Make an extra student loan payment to take advantage of the added interest.
- Pre-pay college education expenses if you qualify for an education-related credit or haven’t claimed the full value of a credit.
- Maximize medical expense deductions by keeping receipts organized or make a spreadsheet with the date of the visit, the physician, a description for the reason for being seen, and your out-of-pocket cost for the visit or treatment.
- Track and deduct mileage for medical purposes or related to physician visits.
- Contribute more into a Flexible Spending Account (FSA) and you can lower your taxable income while providing a plan to pay various medical-related expenses like doctor office visit co-pays, prescriptions, and certain medical equipment (glasses, contacts, etc.).
- Contribute to a pre-tax Child Care Savings Account plan if your employer offers it. These plans can help reduce your taxable income since the contributions are made before payroll taxes are taken from your pay. If your employer doesn’t offer this account, check to see if child care payments can be made from your FSA plan.
- Claim the Child Care credit if you have children in childcare over the holidays so that you and your spouse can work – credit is worth between 20-35% of what you pay for childcare.
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