As we approach the end of the year (and the beginning of tax season!) it’s time to start thinking about how your year went financially. If you made a little more money than usual or are anticipating a high tax bill for your personal income tax, you still have time to reduce your bill before the end of the year.
Here are four ways to lower your personal income tax obligation before December 31st:
Pay Deductible Expenses Early.
- Pay January’s mortgage by end of December
- Pay ahead for property taxes due in 2016
- Contribute more money to your retirement (IRA & 401K are deductible)
Donate to Charity.
- Use a Schedule A to itemize deductions
- Keep proof of your charitable donations
- You can deduct cash contributions up to 50%of your AGI; 30% for property donations
- Use IRS Pub 78 for a list of approved charities for deductible donations
Pay Tuition Early.
- Prepay tuition and expenses for academic periods that begin in January through March of next year
- See if you qualify for the American Opportunity Credit or the Lifetime Learning Credit
- Deferring income is worthwhile if you expect to be in the same or lower personal income tax bracket next year
- Self-employed or cash-basis taxpayers should wait until end-of-year to send out invoices so they won’t receive payment until 2016
- Deferring income can be helpful every other year to take advantage of tax breaks
Do you have any other financially-savvy tips for reducing your personal income tax bill? We’d love to hear them! Leave your tips in the comments below.