Tax-filing season is still months away. However, the time to start planning is now. Until the end of the year, you have the opportunity to take steps to help cut your tax bill. Below are some of the steps you can take this Fall to ease your tax burden in the Spring. It is a good idea to consult with your financial advisor to help you with your end of year tax planning.
Check your Affordable Care Act status – If you underestimated your income and received too much subsidy, you may have to pay it back. If your income was less than you estimated, you may get a subsidy via your tax return. If your circumstances have changed, you can make changes now at the Health Insurance Marketplace. If you do not have insurance, apply for an exemption. Those who did not purchase health insurance this year face a tax penalty, unless they meet some of several exemptions. To complete your tax return, you will need an exemption number, which you can get from the Health Insurance Marketplace.
Consider whether to accelerate or reduce income – For some taxpayers, it may make sense to prepay your mortgage and real estate taxes and incur business expenses in 2014. For others, paying those expenses in 2015 may be more advantageous. The only way to make those decisions is to calculate where you are financially this year and where you expect to be next year.
Take care of your business taxes – Make sure you are treating your part-time business as a business. That includes making quarterly tax payments or having extra money withheld from your paychecks to cover those profits. If you have been doing your own taxes up to this point, you might want to at least meet with a tax accountant for advice.
Add to your retirement contributions – If you have not contributed the maximum to your 401(k) or IRA, stepping up contributions now may cut your tax liability when you file next year. Also, make sure you are putting the maximum amount possible into your health savings account, if you have one associated with a high-deductible health plan. That conveys maximum tax advantage for the long term.
Give to charity – Donations of cash or goods to qualified organizations can cut your tax bill if you itemize. Remember that you need a written record of charitable contributions of more than $250 and an appraisal for those worth more than $5,000. If you give your favorite charity shares of an investment that has increased I value, you can save taxes and help the charity. Instead of selling the shares, paying capital gains taxes on your profits and giving the remainder to your charity, you can transfer the shares, get a charitable deduction for their full value and let the charity—which is not required to pay income taxes—sell the shares.