You have the ability to control the timing of certain financial events, and there can be significant tax advantages in doing so. At the end of the year, it’s a good idea to think about which actions you should take before the year is over and which ones you should defer until next year.
Consider the following tips to maximize your end-of-year tax deductions.
The holidays are a season of giving, and also a great time to maximize your charitable contribution deduction. If you itemize your deductions, every dollar you contribute to charity should reduce your taxable income. Make sure you get a receipt to back up your deduction.
Retirement Account Contributions
Add money to your 401(k), IRA, or any other type of qualified retirement account to reduce your taxable income for the year (except in the case of a Roth IRA). You can even make deductions to an IRA before April 15 of next year and still claim the deduction on your tax return.
Limits apply based on the type of account and your age, so make sure you aren’t over the limit to claim the deduction.
Harvest Your Losses
You can choose to sell assets at a loss before the end of the year to offset gains and some ordinary income on your tax return. If you have excess losses, they can be carried over to the next tax year.
Business Expenses and Income
Business owners have a little more flexibility in timing their income and expenses. You could get tax benefits from both.
You can take ordinary and necessary business expenses before the end of the year to reduce your taxable profits. Note that some asset purchases will need to be depreciated over several tax years.
If you have income due near the end of the year, remember that it will be taxed when it is received. You can choose to delay invoicing and receive the money in the next tax year.
You don’t always need to accelerate your deductions, but it can be advantageous in some situations. If you know you’re going to owe taxes in April when you file your return, you could reduce the amount you owe using some of these strategies.
If you need further help negotiating an installment agreement or Offer in Compromise, contact a tax attorney for assistance.
The Gartzman Law Firm offers delinquent tax return preparation and tax settlement help for both federal and state tax debt. Use our contact form to request a consultation with an Atlanta tax resolution attorney.