It's hard to believe 2016 is coming to an end, but it's fast approaching and taking a few small steps to prepare can help save you money. Let's be honest, most people slide into the new year completely unprepared for filing their taxes for one reason or another. Once their returns are filed it becomes clear that some tax saving steps could of been taken had they been more prepared throughout the year.
Here are a few tips to consider to prepare for the end of the year:
- Early payments. Since tax deductions can lower your overall taxable income, it’s important to know what you could be eligible for. Consider making an extra mortgage payment or even prepay state and real estate taxes before the end of the year to allow for an extra deduction. This lets you take the deduction immediately rather then wait another 12 months.
- Defer a bonus. If you're expecting a year end bonus this year, it may bump you up to a new tax bracket and increase your tax liability. If you can wait, see if your boss will pay your bonus in January. This allows you to receive it close to year end and you won't have to pay taxes until you file your 2017 taxes.
- Take a class. Taking a course to advance your career and build your business is also a great way to boost your tax refund. Paying for next quarter’s tuition by December 31 may give you a valuable tax credit up to $2,000 with the Lifetime Learning Credit.
- Spend your FSA. If you have a Flexible Spending Account and you have money left, get caught up on your doctor’s visits. The old “Use it or lose it” rule may not still apply, but if you have unused money in your FSA account on December 31, you may only be able to carry over up to $500 into your 2016 FSA or your plan may limit the amount of time to 2 1/2 months after the end of the plan year to use your funds.
As always you should consult your tax advisor and invest the time in preparing a tax projection in order to determine if these tax strategies will be beneficial for you.