There is not enough room here to include everything, but here are a few common tips that can help. (More to come in a following blog.)
Maximize your retirement contributions:
Whether you have a 401K plan, an IRA simple, a SEP plan or even a Roth or regular IRA, if your financial situation will allow it, make sure you contribute the maximum amount that you are allowed by law. Do not find yourself in your accountant’s office in March saying, “Oh, no! I could have and should have contributed more.” Do it now.
Contribute to a health savings account:
This is one way to get around the high limits on medical deductions, which are so lofty (10 percent of AGI for most) that people can’t deduct medical costs at all. Plus, you lower your Adjusted Gross Income (AGI), which is important when defining limits for whether or not you can deduct IRA contributions or are even eligible for a Roth IRA.
If you have lost money on stocks, and in your opinion they’re never coming back, sell them and take the losses. Then you can possibly look at some of your gains and take them before those stocks perhaps become stinkers. Losses can be deducted against gains and any excess losses can be deducted against other income up to $3,000.
Pay real estate taxes early
This will help you lower your state taxes, as well. However, if you find yourself stuck in the Alternative Minimum Tax (AMT), this will not help you at the Federal level.
Accelerated Deduction Strategies
This is another year-end tax strategy. Deduction acceleration strategies allow you to reduce taxes in the current year at a higher rate, if the overall tax rate is expected to be lower in the following year. What you do is pay tax deductible expenses this year instead of next year, such as medical bills, charity donations, property taxes, etc.
Classical advice would always be to pay state taxes early, and bunch your deductions, such as miscellaneous deductions. In other words, if you have legal fees that could be spread over two years, pay them in one year. That’s still good advice, but ultimately because of the Federal Alternative Minimum Tax the miscellaneous deductions sometimes only help with your state taxes.
If you believe you are going to have more income next year than this year, you might want to defer deductions into a year where you have higher income. As we know, tax rates are graduated.
These are some of the things you can do now to help decrease your tax burden. Talk to your tax professional now rather than February, March or April. Most tax preparers are aware of these items and can guide you.
Have you started to think about income taxes yet? What steps have you taken to lessen your tax burden?