The end of the year is fast approaching and with that comes the deadline to settle your taxes for 2017. If you’re envisioning a large tax bill this year, you might be scrambling through your receipts to see how you can lessen the damage from the taxman. Fortunately, there are many last-minute tax write-offs you can take advantage of before 2017 waves goodbye.
Contribute to charity
Giving to charity ends up not just being good for your soul, but also for your wallet. If you itemize deductions, you may deduct contributions to qualified charitable organizations. These include possessions of state or federal government (such as national parks), churches, synagogues and other religious institutions, veterans organizations, nonprofit fire companies and more. You can also donate appreciated stock or property to a qualified charitable organization. You can then deduct the property’s value or avoid paying capital gains on the stocks.
Sell losing stocks
Selling losing stocks, or “loss harvesting” is one of the few times where it feels good to lose. If you hold a group of stocks, you can use your losses to offset capital gains on your winning stocks. Under US law, you can use losses up to $3,000 to offset gains dollar for dollar. If your losses exceed the $3,000 limit, you can roll over the excess losses into the next tax year.
Defer your year-end bonus
Many companies issue bonuses in the final quarter to reward employees for a good year. To make it an even better year, ask your employer if they are willing to delay that bonus into early 2018. This way, you won’t pay tax on the bonus for 2017, but rather pay on next year’s tax bill. You’ll have to pay taxes on your bonus regardless, so this method only makes sense if you want to pay less tax for 2017.
Max out your retirement account contributions
Are you taking full advantage of your 401(k) account? 401(k) contributions enjoy significant tax advantages over other investments. US law allows you to contribute up to $18,000 per year or $24,000 if you’re 50 or older. If you’ve already maxed out your 401(k), you can move onto your traditional or Roth IRA. You can contribute $5,500 per year to an IRA or $6,500 if you’re 50 or older. You’re given until April 17, 2018 to make contributions for the 2017 tax year, so maxing out your IRA isn’t as time sensitive. But why wait?
Make your required IRA withdrawals
Okay, so this isn’t so much a tax write-off as it is a technique to avoid getting hit with a tax penalty. But either way, it’s a quick step that saves you money. A traditional IRA requires that you make a certain amount of withdrawals based on your age, life expectancy and the amount of money you started the account with. If you fail to make the proper amount in withdrawals, you’ll get slammed with a 50% excise tax on the amount that you should have withdrew. Consult your plan administrator to find out your specific withdrawal requirements. Keep in mind that the tax penalty only applies to traditional IRAs and not Roth. Don’t let a simple oversight cost you come tax season.
We’re not advising you to run out and get married before the year ends (unless you want to). But if you got married this year, you can potentially write this off as a charitable deduction if you got married at a venue considered to be a charitable organization. And is that wedding dress sitting unused in your closet? You can also write off the costs of your wedding dress if you give it to charity. However, you can only deduct the fair, current value of the dress and not what you originally paid for it.
Pay medical bills
For some reason, only 9 million people, or 1 in 4 filers, take advantage of this tax write-off. You’re allowed to deduct medical costs if they exceed 10% of your adjusted gross income (AGI). If you’ll reach the 10% mark this year, consider paying some medical bills early or stocking up on medical supplies for next year. Deductible medical expenses include everything from chiropractic care and acupuncture to prescription drugs, insulin, eyeglasses, weight loss programs, home improvement to accommodate a disability and much more. If you were born before January 2, 1952 then you can deduct medical expenses that exceed 7.5% of your AGI.
Prepay your mortgage
Like delaying your year-end bonus, this technique can go both ways. Prepaying your January mortgage payment allows you to write off the interest on your 2017 tax bill. You can only use these tax write-offs once, so this option only makes sense if you to lower your taxes in 2017.
Fix up your home
Looking to make some improvements to make your home more efficient? Now is a perfect time because you can claim a tax credit on 10% of your costs for certain energy-efficient home improvements. This includes replacing windows and doors and installing solar panels. These tax write-offs might go away after this year so take advantage while you can.
Contribute to your child’s college fund
Education is the gift that keeps on giving and taxes are no exception. 529 accounts provide tax-free savings for your child’s higher education. You can also deduct contributions to 529 accounts. The amount varies by state, but Arizona allows tax write-offs of up to $2,000 for individuals and $4,000 for joint filers.
Lowering your tax bill often involves a level of strategy similar to a chess match. But by knowing the lesser-known tax write-offs available, you can help make sure that you’ll have a smile on your face once April comes around.