9 Year End Tax Savings Tips

It’s December and the year will be ending before you know it. Don’t fret, there’s still time to take advantage of some tax saving tips to make your tax burden next April a little less.

Here are 9 year end tax savings tips:

Max Your 401(k)

If you can afford to take the paycheck hit now you can up the percentage of your 401(k) contribution.  Your contributions are tax-free and will lower your taxable salary.

Open or Contribute to a Traditional IRA

For some a traditional IRA may be a better option than a Roth IRA.  With a traditional IRA you get to deduct your contributions from your taxable income.  Have have until April 15th to contribute.

Sell Losing Investments

The sold investment losses can be deducted to offset gains or to reduce your taxable income.  The limit is $3000 though.

Donate to Charity

Donations before Dec. 31st can be deducted on next year’s return.  You have to itemize your deductions to claim this.  Bonus benefit: You might be helping some people out!

Prepay Bills

If you prepay some bills such as mortgage payments or medical bills you can write them off on next year’s return.

Second Chance Economic Stimulus Payments

Some who didn’t qualify for economic stimulus checks earlier in the year may qualify this time due to a life change (marriage, birth, change of income…).

Job Search Expenses

If you searched for a new job (in the same industry you’re in now) you can deduct expenses you incurred such as resume preparation, career counseling, travel, and phone calls.

Tax Relief for Foreclosures

Normally if your home was foreclosed or the mortgage was reduced or restructured you would have to pay taxes on the amount reduced.  Recent legislation has made it so you may not have to pay taxes on the forgiven amount.

Use Up Flexible Spending Plans

You contribute to a flexible spending plan to save on taxes.  But if you don’t use up the contribution amount then you lose the ability to claim it back.  Make sure you claim the full amount before the deadline passes (check with your HR department to see when your company’s deadline to claim is).

Most people don’t like to pay taxes.  You still have some time to take advantage to lower your tax burden.

Bonus Tip (because I thought of it after I first published):


Max out a 529 plan for your kids. Many state plans offer tax advantages for contributing! (check the specific plan for details).

These tips are in part courtesy of our friends at Intuit and TurboTax who were kind enough to provide them.

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Published or updated April 16, 2013.

Comments

  1. I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you down the road!

  2. @ Jeff – I recall 2010 as being the year where you can transfer traditional IRA’s to Roth IRA’s without penalty. I don’t know the facts offhand but it could be a good incentive to take the tax break on a traditional IRA now and convert it in 2010.

    Anyone have the details on this?

  3. @ Jeff – Thanks for the info!

  4. Don’t forget the possibility of converting your traditional/rollover IRA’s to Roth IRA’s. With the market being down, it would be an excellent time to convert since you would be paying less income tax on the dollar amount your convert. Your AGI cannot be over $100k though, so keep that in mind.

    Jeff Rose’s last blog post..Change in 403b Accounts

  5. @FFB. 2010 is the year that the income restrictions are removed. Currently, if your Adjusted Gross Income is under $100,000 you are able to convert a Traditional IRA to a Roth IRA. For those that make more than this, you have to wait until 2010. FYI: The $100k is the same income limit for individuals as well as joint filers.

    There is no penalty now or in 2010, just the income limitations. In both instances of course, the tax will be have to be paid regardless.

    Hope that helps!

    Jeff Rose’s last blog post..Change in 403b Accounts

  6. @ Joe – The holidays are coming up. You never know, you might end up with some cash to use!

  7. Ah… if only I had the extra cash with which to prepay bills and max out investments… :-/

    Joe’s last blog post..How To Survive the Next Great Depression.

  8. I upped my charitable contributions this year. That’s a tax deduction I can feel good about!

    SimplyForties’s last blog post..Does Your Spending Support Your Values?

  9. @ Simply Forties – Oh Yeah!

  10. Of all these tips, #1 (max your 401k) is the most valuable in my mind because a) it lowers your taxable income and b) you have the added benefit of ensuring that you’re saving for a comfortable retirement.

    I find many of these other tips as somewhat negative, however. Sell your losing investments? The S&P 500 is down considerably in the last year, so is it wise to dump investments now for tax deductions? Maybe hold on until the economy has had a chance to recover a bit. Foreclosures? Come on! Let’s be positive here!

    All in all, I think this is a good list you have compiled here, even though it has a bit of a dark side. The intent here is to maximize your tax return, or at least shrink the amount you owe. I have a similar feature coming up on my site for the first of the year taxadvisr.com ( Maximize your Tax Return. Shameless plug. Thanks for sharing this list with us!

  11. @Jolie.

    Your absolutely right. You should never sell an investment to “just” take the tax loss, especially if it’s a good investment that’s just been hurt by the sour market.

    It still wouldn’t be a bad time to review your portfolio to see where some strategic moves can be met.

    Taking a loss doesn’t make up much, but a couple hundred bucks is more than most people have made on their investments this year

  12. @ Jolie, Jeff – I agree you shouldn’t sell an investment just because it’s down. If it’s a good company that you believe in you my want to hold. The point here is if you have a losing investment that you plan on selling you might want to do it before the year ends to declare the loss.

  13. I’d like to know more about deductions that could lessen my tax burden. Thanks for this information.

  14. Good tips… they will surely make me save some money from taxes…
    For the most tricky ones, you also could consider to hire an accountant to optimize your saving. It cost a bit, but can be very efficient for people with good earnings

  15. Alister Hu says:

    Are incomes from internet activities, such blogging, affiliation, Cfd trading are subject to tax declaration ?

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