Last Minute Year End Tax Strategies
2011 is coming to a close and you only have a few more days to lower your taxes. There are some who might think it is too late to take any action with less than a month until the end of the year. However, there are a few things you can do to lower that tax bill.
Maximize Contributions
If you have not placed all the funds in your IRA or your 401k plan that you are legally allowed to, this is the time to reach your limit. I If you haven't started an IRA, now is the time to begin. The funds you place into the IRA are immediately reduced from your income if you qualify.
Defer Income
Ask your employer to defer paying you any bonuses in December until January. Defer taking distributions of your IRA or any other retirement vehicle, until January. If you have stocks that have done well, defer selling those with taxable gains until after the next year. These are a few strategies that you can use to help reduce your income but check with your tax professional for additional advice.
Sell Losing Stocks
Any stock loss that you realized on the stock market that aren't offset by any gains can be deducted from your income. Sell any losing stocks you currently hold in a taxable account. You are able to deduct the losses against any gains in investments you may have sold. Keep in mind that other losses that you don't deduct this year can be carried forward as deductions for the following year.
Give to Charity
While this is a good idea year round, deductions made to 501c3 organizations are tax deductible. This provides a benefit to the organization and to you as well. Do not donate any losing stocks. You can donate appreciated shares of stock and pay no taxes. If you sold stock that you were losing money on, you can donate the cash you received from the sale. Donations of $250 or more must come with a receipt from the 501c3 organization. If you donate good, keep a written description of all of the items that were donated.
Prepaying Certain Expenses
If you are a homeowner, there may be some additional things you can do. In some instances property taxes aren't due until January; pay them in December. Likewise, if you can, make your January mortgage payment in December and you will be able to deduct the interest on that payment.
If you have large medical expenses that will need to be paid, try and pay them before the year is out. The IRS allows you to itemize and deduct medical expenses over 7.5% of your adjusted gross income so now might be the time to try and pay them, especially if paying them now takes you over that percentage.
Most of these strategies only work if you are itemizing your deductions. It is best with this, and other advice, to check with professionals who are experts in their fields.
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