Tax Savings Ideas
DONATIONS. Donate cash to charity or clothing or household items to the Deseret Industries, Salvation Army, etc. before the end of the year. Make sure you get a receipt for your donation. Clothing must be in good usable condition. Take pictures of your non-cash donations and list them on a piece of paper to justify your deduction. Some clients find that their annual cash contributions are no longer enough to push them over the standard deduction amount. One tactic that might help is to prepay the next year's cash contributions to charity (such as church tithing) with your annual contribution for the year. For example, if your annual cash contributions are $16,000, pay $32,000 in one year (prepaying the next year with the current year) and nothing the next. That way you may be able to itemize deductions every other year by using this method. I've had clients get audited when they did this.
FLEXIBLE SPENDING ACCOUNTS If your employer provides a flexible spending account for medical expenses or child care, take advantage of it if you know you will be paying out-of-pocket expenses. Child care credit on your tax return could be less than the benefit of a flexible spending account since it's normally a 20% credit and you may be in the 22% tax bracket. For medical expenses, the money you would normally pay for prescriptions and co-pays can be tax free without getting over the 7.5% threshold of medical expenses on your itemized deductions.
If you have a flexible medical spending account, make sure you schedule dentist and doctor appointments, get new glasses, refill prescriptions, etc. before the end of the year. If you don't use the money in the account, you lose it. Several FSA's have a grace period until the middle of March of the next year to use your money so plan accordingly.
HEALTH SAVINGS ACCOUNTS If you have a high-deductible health plan, sign up for a Health Savings Account (HSA). The amount you contribute to the account is not taxable. Distributions from the account to pay for medical expenses are not taxed. Contributions must be made by the end of the tax year.
TUITION If you've paid college tuition this year for yourself or a dependant and have savings bonds, you may want to cash some to take advantage of the non-taxable interest if they are used for higher education.
EDUCATIONAL SAVINGS ACCOUNTS You may want to contribute to a Utah 529 educational savings account to help your children or grandchildren. The amount you contribute is deductible on federal and state income tax returns as long as the money is used for higher education expenses. The earnings from the account is not taxed on Federal or State returns.
REAL ESTATE TAX If you owe back-taxes on real estate, pay them before the end of the year for an increased deduction. You cannot pre-pay real estate taxes if they have not been assessed. Schedule A tax deductions are limited to $10,000 through 2025.
DEDUCTIBLE EXPENSES Charge deductible expenses on a credit card if you are short on funds. Medical bills, charitable contributions, etc. are still deductible if paid by a major credit card. Store cards are excluded.
WITHHOLD MORE IRS requires that you pay 90% of your income tax liability each quarter of the year. If you don't pay enough and owe more than $1,000 with your tax return, you can be penalized. Increase your withholding from your last few checks for the year if you have underpaid your taxes. This will help out if you are behind on your withholding.
MEDICAL APPOINTMENTS Try to schedule major surgeries and other large medical expenditures in one year. This may get you over the 7.5% gross income subtraction and allow you to take a deduction you wouldn't otherwise be able to take. If you still have funds in your FSA account, this would be a good way to use up the funds.
STOCK LOSSES You may want to sell a loser stock or two by the end of the year to take a loss against your other income. You may claim a maximum of $3000 in capital losses per year. The remainder will carry over to the following year.
TRADITIONAL IRAs You must have earned income from a job or self employment to contribute to an IRA. Make a traditional IRA contribution if you have earned income up to the amount of $7,000 for those under 50 years old or $8,000 if 50 years old or older. If a taxpayer does not qualify and has a non-working spouse, a contribution for the non-working spouse may be able to be made. The contribution may be able to be deducted from gross income so you pay less tax. You have until April 15th of the next year to make a contribution for the prior tax year. Increase your traditional 401k contribution through your employment. The contribution is deducted from your taxable income on your W2 and is tax-deferred until you withdraw it at retirement.
OWN RENTAL REAL ESTATE If your gross income is less than certain limits, you can take a loss against other income on your tax return if your rental expenses (including depreciation) are more than your rental income. This works well as long as you own the rental real estate. Once you sell it, you must recover all of the depreciation you have taken as well as pay tax on any capital gain from the sale.