While there isn’t much time left this year to do things that would reduce your Federal Income Tax bill, there are things you could do to take some of the sting out of tax time and here are eight of them.
Cut your income
Probably this seems obvious but the less money you make this month, the less taxes you will be required to pay. If you earn a salary there’s not much you can do about this.
But if you’re in business for yourself you might be able to arrange to do some work this month but then not get paid for until next year. For example, if you’re a freelance content writer you might be able to arrange with a client or clients to write articles this month but not bill for the work until January.
Buy a car
Do you live in a state with no income tax? In this case, making a purchase such as a boat or a car that results in a big sales tax can be a valuable deduction. This is because the IRS allows people to deduct one of the following – either their state income taxes or sales taxes. So if you’re in the market for a new automobile make the purchase now so you will have a large sales tax deduction this year.
Put as much in your IRA or 401(k) as possible
There are two wonderful things about putting money into a 401(k) or IRA. The first is that thanks to the power of compound interest the money you deposit now will just grow and grow in the years ahead. Second, the money you stuff into your IRA or 401(k) is basically tax-free as you will be allowed to deduct the money from your ordinary income.
You can deposit as much as $18,000 into your 401(k) or if you’re age 50 or older you can deposit as much as $24,000.
While the limits on an IRA are not quite so generous, you can contribute as much as $5500 or if you’re 50 or older, $6500. Just make sure you use a traditional IRA and not a Roth IRA.
Are you the sole proprietor of a small business? In this case, you can reduce your tax bill dramatically by opening what’s known as a SEP IRA or Solo 401(k).
Pay your local and state taxes and mortgage now
Do you have a state or local tax bill or mortgage payment that’s due in January? Then pay it this year so you can get the deduction. For that matter, according to one expert, there are a number of 2017 upcoming taxes and mortgage payments you can’t pay now but you should make sure you get any 2016 payments covered before December 31.
Pay for college
You can get a credit of as much as $2500 for the year if you or your child is in a trade school or college. This makes it important to pay college expenses before the end of 2016. You’ll be able to get the credit again next year if you or your child is still a student. For that matter, you can claim this credit for up to three students a year or a total of $7500 in credits.
If you completed college and are paying interest on a student loan you can deduct some or all of it. Just make certain you are up to date on paying off your loans. Either you or your child can claim this deduction – depending on the payments.
Sell those losers
Have you sold investments that increased in value since you purchased them? You will be required to pay taxes on the gains if you’re in one of the upper tax brackets. However, you could sell an investment where you lost money to offset the gain and avoid the taxes.
Find a new job
It may be a bit late for this but if you’re looking for new job you can deduct the all the expenses of your job hunt from the costs of traveling to another city for a job interview (if you’re not reimbursed for the trip) to having resumes printed. However, spoiler alert – your expenses have to be more than 2% of your adjusted gross income.
Give some of your investments to a charity
Consider giving some of your mutual funds, stocks or other investments to a charitable organization instead of cash. Any investment you donate is better than cash because neither the charity nor you will have to pay taxes on the gains in their value – or what’s known as a capital gain