Taxes! Not the most exciting topic, but it’s one of those necessary evils we all have to endure. Oddly enough, I enjoy thinking outside the box when it comes to taxes and finding unique ways to save money.
Who doesn’t want to make the most of their finances, by reducing how much taxes you owe and getting the maximum refund you can?
Well that’s what I’m going to help you do! Here are some simple ways to make tax season as painless as possible and all you have to do, is apply a few of these money-saving moves.
1. Max Out Your Retirement Contributions
If you haven’t maxed out your IRA contributions yet, or are on the fence about opening up an account, now is the perfect time to do so. Depending on your financial situation you may want to open a Traditional or Roth IRA, and can easily do so at any bank or discount brokerage firm. The investment can be as risky or as safe as you like it.
As a young adult myself, I opened up a Roth IRA this year, with both a simple CD (which is less risky) and a few mutual funds (which are more risky). There are many reasons you want to max out your retirement accounts this year, but the main one is that you could be eligible for a Saver’s credit.
Basically a saver’s credit is a credit you’ll get, when you file your taxes, for contributing to any qualified retirement plan – like a 401(k), SIMPLE, SEP or any IRA. The amount you’re eligible for varies, since the credit is based on a percentage of the amount you contributed. But if you do qualify for the Saver’s credit, it will save you money on your taxes when you file your return.
Ready to pay off debt faster?We can help you make a free, personalized plan to pay off your debt as quickly as possible. Our free tool shows you which debt to pay off first. Try it now.
2. Boost Your Income
Making more money is a smart way to get out of debt fast, but it could also save you money on taxes. How? Starting in 2013, higher income earners will see an increase of 0.9% in Medicare taxes, which means it’s a good time to think about boosting your income right now.
By choosing to take your end-of-year bonuses and additional side-job income now, you could save yourself money on the additional taxes that will come do next year. Of course, Congress could change or extend the tax cuts for next year, so you’ll have to determine what’s best for your financial situation.
3. Make a Donation to Charity
In the spirit of #GivingTuesday, take time to give back to a charity or worthwhile organization. Not only will it have positive effects on the people you’re helping, but it’s good for your wallet too. You can write off each donation as a tax-deduction when you file your taxes.
This will lower the amount of taxable income, which could mean big savings. Besides, wouldn’t you rather give your money to help someone in need, instead of paying taxes? Make a donation to a charity of your choosing before the year is up!
And don’t forget about deductions for volunteering. If you participate in something like a toy drive or help out at a food bank, you can deduct any expenses you incurred related to it. Keep track of the mileage and fees for volunteer-related parking, tolls and any other forms of transportation you use.
4. Make Note of Lifestyle Changes
Did you get married this year? Have a new baby? Move into a new home? Any lifestyle changes you experience over the past year will affect your financial picture come tax season. You don’t want to miss out on potential tax savings, so take time to think over the past year and make note of any big changes took place.
For instance, if you were affected by Hurricane Sandy, you could be eligible for disaster relief deductions, extension of filing deadlines and removal any penalties. You also have the option to take your deduction in this year or wait till next year, which means you could get a tax refund a lot sooner.
5. Invest in Energy-Efficient Appliances
As an incentive to conserve energy in your home, the government offers tax credits to anyone who invests in energy-saving improvements. This program is known as Energy Star. Appliances that are eligible for the deduction include, windows, heating and air-conditioning systems and insulation.
You could also qualify for an additional 30% energy tax credit for residential geothermal heat pumps, wind turbines and solar-power systems that are installed before the end of 2016. The deduction takes money directly off your taxes and the Energy Star credit isn’t income-qualified, so you can take it no matter how much money you make.
How to Get Ahead of the Game
Getting your finances in order now before the end of the year will help you save time, and let you keep more of your hard-earned money. Not to mention it will be less of a headache once tax season arrives.
There’s no doubt we want to save the most money and pay the least amount of taxes, and by making a few of these money-saving tax moves before the end of the year, we can do just that.
Image credit: Aaron Gustafson