As the end of December rolls around, millions of Americans think about office Christmas parties, spending time with family and last-minute holiday shopping. December is also a great time to think about that year-end tax move to help you save some money for your income tax return for the first part of next year.
Perhaps the best thing you can do is check with your accountant to see if a tax move makes sense in December. For example, some deductions you can pay before Jan. 1, while others must wait until after the new year starts. Moves that work before the end of December include purchasing business assets needed at the beginning of the year, selling any stocks that are losing money, maximizing IRA contributions and donating money to charities.
Especially for seniors, compiling all of your medical and health insurance expenses is important. These serve as deductions on your income tax return, and they may reduce the income that goes towards income tax liability. Looking into child care deductions if you take care of a grandchild or a dependent, and making sure you have proof of these expenses, is a wise tax move.
In terms of businesses, gather your documentation in December rather than waiting until later. This makes you more prepared to file your taxes. Getting everything ready in December as a year-end tax move helps you gauge your financial standing for next year. Consider collating your documentation as a way to clear out the old and bring in the new as the calendar turns to the next year. Tax and accounting software can help organize your documentation and files better so you have a clearer picture of what you owe.
Another good year-end tax move includes making a higher estimated tax payment if you believe you should move up to a higher tax bracket next year. These quarterly payments help reduce the tax owed by April 15 each year. If you've made an overpayment once everything is calculated, you get a refund from Uncle Sam.
The long-term capital gains tax rate may provide some tax incentives. If you land in the 10 to 15 percent tax bracket, the long-term capital gains tax rate is 0 percent. In tax brackets of 25 percent or higher, you qualify for the 15 percent rate until you reach the 39.6 percent tax bracket. At that point, you owe 20 percent for capital gains taxes. Sometimes, you can derive tax advantages by remaining in an upper bracket depending on how you derive and calculate your income.
One simple tax move can make a huge difference to your income taxes in the months that follow. Simply keeping better track of things throughout the year helps keep your finances, and therefore your income taxes, on track for success.
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