April 15 may be months away, but now is the right time to start thinking about how to pay as little as possible come tax day. You probably know that the money you pay the IRS in 2013 covers only that money you earned (or lost) in 2012. The lower your 2012 earnings, the less you will have to pay and you may even qualify for a refund.
Obviously you do not want to go to your boss and ask her to start paying you a lower salary, but there are less drastic things you can do to reduce your taxes. Even better, some of these strategies will benefit you in the long run.
1. Take a Loss on Poor Investments
Take a look at your entire investment portfolio, particularly investments you have been holding for a while. If you have some longtime under-performing stocks or mutual funds, 2012 might be a good time to sell them for a loss. The amount of money you lose can offset capital gains you earned from other investments.
2. Contribute to Retirement Savings
It is always a good strategy to max-out your contributions to your 401k retirement plan. The money in the plan grows tax free until you need it, so if you have not made your maximum contribution for the year, try to do so before December 31. Similarly, make your traditional IRA contribution for the year if you have an account; the money you put in is tax deductible, although contributions to a Roth IRA are not.
3. Donate to Charity
Get into the holiday spirit by making contributions to your favorite charities; the money is tax deductible. Even better, if you can sell an investment for a loss, do so, and then donate the money you get back you get a “double deduction” by doing so. If you want to donate stock or other securities that are doing well, it is better not to sell them first so that you do not incur the capital gains tax on them. Most charities are happy to accept stock or bonds as a donation.
4. Max Out Available Tax Credits and Deductions
Talk to your accountant to make sure you are taking advantage of all of the deductions and tax credits available to you. Examples of deductions you may be eligible to receive include those for certain business expenses, mortgage interest or medical costs. Tax credits may be available for things such as childcare costs or higher education.
5. Try to Defer Earnings
While you may not be able to control when your company pays you your holiday bonus, there are times that you can put off earnings or bonuses until after the New Year. If you own your own business, wait to pay yourself that bonus, for example.
6. Make Personal Decisions
It may seem a little more extreme, but if you get married, adopt or have a baby before the end of the year, you can take advantage of certain tax advantages. Of course, it is too late to plan to have a child unless one is already on the way, but if you have been thinking of getting married and need to decide on a date either before or after December 31st, keep the tax advantages of having a 2012 nuptials in mind.
Debbie Dragon is a freelance writer providing content for BackTaxesHelp.com, a site dedicated to helping people solve their tax problems with the IRS or their state.