The top 10 Tax Tips for the Year-End to make the New Year a big success.
The year 2020 is about to end and it is the best time to make some very smart decisions related to taxes. These smart moves can be helpful in an increase in your tax refund and can also lower your taxes to be paid.
Let us have a look at some of the tax tips which would be helpful in getting your finances organized for saving more money during tax time.
Accelerate your deductions and income deferment.
In general, there are a large number of tax deductions associated with a particular year. If you own a home, you would have a mortgage interest deduction and in case of making any additional mortgage payment on 31st December then you would have the eligibility to claim the additional interest that has been paid as a deduction.
By this, you would be able to avail the benefit of tax deduction instantly rather than by waiting for a period of 12 months to pay your taxes in the next year. However, before you use this tax strategy you must keep in mind that as per the tax reforms if you have bought a new house after 15th December 2017 you would be able to deduct the interest on a home loan which is up to $750,000 and not $1,000,000 for those who purchased the house before that date.
In case, you are about to obtain a bonus at the end of the year the extra money might push you into another tax bracket thus, increasing your taxes owed. If you would be able to defer your bonus until the beginning of the next year, you can avoid your tax payment while filing taxes for 2020.
Donate for charity.
Christmas and New Year time is the best time when you can use the unnecessary items in your closet for helping those who are the needy. By this, you can also reap the benefits of tax deductions for the donations made to a qualified charitable organization. These donations can be monetary as well as non-cash donations and would be helpful in tax deduction if you are itemizing your tax deduction.
Under the provisions of the CARES Act, even if you are not itemizing and claiming your Standard Deduction you can still avail the benefit of a new charitable deduction up to $300 on the taxes you owe for 2020 for any donation you have made towards a 501(c) (3) organization. Moreover, by the CARES Act, there would be a temporary removal of the limit that has been placed on the number of cash contributions that you can make if you are itemizing your deductions.
Another method by which you would be able to decrease your income that would be taxed is by making some contribution to your retirement account. Even if you are making a contribution to a traditional IRA or a 401(k) plan then also you would be able to reduce your taxable income. In case, you are self-employed and making contributions to a SEP IRA you can still contribute up to less than 25% of your total income obtained from self-employment income or a total of $57,000 for the year 2020.
You can also take some finance courses or training for improvement of your skills on finances. This would be helpful in reducing your taxes and also increasing your tax refund.
In case you have an FSA and there is money left out in your FSA then you can use the money left for some other useful activities. These useful activities can be a doctor’s visit or any other important expense which must be done immediately.
Additional Dependent Credit.
There can be some other additional dependent credit which can be availed by you in case you qualify for a new dependent credit i.e. “Other Dependent Credit” which would be up to $500. This can be helpful in reducing the taxes you owe approximately by $500.
In case, you have not had the expected outcome for the year 2019 because of the changes in law or due to changes like becoming a parent, losing your job, having an increase or decrease in pay, or getting a new job then the amount which would be withheld from your paycheck can be corrected by refilling the Form W-4.
Buy and Sell Low.
You can sell your investments that are causing loss to offset the losses caused against the gains obtained. In case, your losses are more than your gains you can apply for a tax deduction of $3000 against your income. Any other income which would be additional can be passed on to the next year.
Gather the receipts associated with the taxes of the home property.
You can be eligible for the deduction of state and local property income or sales tax up to an amount of $10,000. These taxes were completely deductible in the past.