The tax professional at L & D Financial Services of Reading, MA, can help you reduce your state and federal tax bills. Here are our Top 10 tax saving tips:
1. Maximize your retirement plan contributions. Employees should contribute to an employer's tax-deferred retirement plan before Dec. 31, especially if the employer matches all or part of the contribution. Contributions to qualified retirement plans can help build a more secure retirement and actually lower income taxes by reducing your taxable income in the current and future years.
2. Delay selling investments and other capital assets with anticipated gains until such assets have been owned at least one year. This 1-year holding period is required for favorable long-term capital gains treatment.
3. Pay your January mortgage payment before Christmas to ensure that the interest portion of the payment is included in your year-end mortgage interest total and deductible on your current federal tax return.
4. Pay your first real estate tax installment (unless escrowed by a lender institution) before Christmas. Real estate taxes are deductible, and this installment is due Feb. 1 in most communities.
5. If required to make quarterly estimated tax payments, pay your fourth quarter state estimated payment by Dec. 31. This payment is due Jan. 15 and is deductible.
6. Make donations (cash, check, used clothing, and other items) to charitable organizations by Dec. 31 and remember to get a receipt. You can no longer prove donations of $250 or more with a canceled check alone.
7. If you may be able to deduct medical expenses (above 7.5% of AGI) or unreimbursed employee expenses and other miscellaneous deductions (above 2% of AGI), accelerate current-year expenses (professional dues, subscriptions, medical expenses, insurance, contract payments, etc.) by paying them by the end of the year.
8. Defer income to the new year or accelerate income to the current year to take advantage of possible lower tax bracket if earnings will be substantially lower this year. Time your awards, bonuses, sales of investment property accordingly, depending on your tax situation.
9. If you qualify for a deductible IRA contribution, make the contribution before April 15. If you don’t qualify for an IRA deduction due to participation in an employer-sponsored retirement plan but would like to put additional funds away for retirement, consider a Roth IRA.
10. Homeowners with substantial credit card balances, car loans, and other personal debt should consider a home equity loan or paying off personal debt as part of refinancing an existing home mortgage. Keep in mind, interest paid on credit cards, car loans, etc., is considered personal loan interest and is not deductible. Interest on home mortgages and equity lines is deductible for federal income tax purposes, and these loans traditionally have lower interest rates.
Get your records organized and make your appointment early. Don't wait until the last minute. As always, if you have questions regarding these tax saving tips or any other tax matter, please contact L & D Financial Services.