It’s hard to believe we’re in the last quarter of the year! With the end of the year, now is a good time to take some simple and wise tax measures to lower your tax burden and increase your tax refund when you file.
Start by putting together all of your receipts for tax-deductible expenses and sources of income, as these 10 quick and easy tax tips will help you organize your finances and save money in pre-year tax time!
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1. Defer bonuses
If your hard work has paid off and you’re expecting a year-end bonus, that extra cash in your pocket can move you to a different tax bracket and increase the amount of tax you owe. If you can postpone extra income until early next year, do it. If your boss can cash out your bonus in January, you’ll still get it towards the end of the year, but you won’t have to pay taxes on it when you file your 2020 taxes.
2. Speed up the deductions and shift the receipts
There are a handful of tax deductions that are recorded in the year you pay them. For example, if you own a home, receive a mortgage interest deduction, and make an additional mortgage payment on December 31st, you may be able to claim the additional interest paid as a withholding tax in the tax year paid.
That way, instead of waiting another 12 months when you start collecting your taxes for the next year, you can start deducting your tax immediately. Before using this strategy, note that under the tax reform, if you bought a new home after December 15, 2017, you can deduct up to $ 750,000 instead of the mortgage interest you paid on a home loan $ 1,000,000 for homeowners who have previously purchased the date.
3. Donate to charity
The holiday season is just around the corner. This is a great time to clear out your closet and household items for those in need. You can help someone in need and take advantage of a tax deduction for donations in kind and money to a qualified nonprofit organization if you can list your tax deductions.
When you volunteer with a qualified nonprofit organization, remember that you can also deduct your charitable kilometers (14 cents per mile) driven. TurboTax ItsDeductible accurately rates and tracks your donations and volunteer miles all year round. You can then export your donations to your TurboTax return. Let these donations count towards your taxes by donating by December 31st. Even if you make a donation by credit card, you do not have to pay it off in 2020 to receive the tax deduction.
If you are making a charitable donation to a qualified charity, you can usually deduct the contribution when listing your deductions. However, under CARES, a new charitable deduction of up to $ 300 on your 2020 taxes will be added for your monetary donations to a 501 (c) (3) organization even if you don’t list and claim the standard deduction. This should be noted as almost 90% of taxpayers now claim the standard deduction instead of the listing and are no longer able to deduct charitable contributions as part of the tax reform.
The CARES Act also temporarily removes the limit on the number of cash deposits you can deduct when listing your deductions. Typically, cash donations that you can deduct are capped at 60% of your Adjusted Gross Income, but the CARES Act removes the limit on tax returns for the 2020 tax year (which you file in 2021).
4. Take a course
Taking a course to advance your career or improve your skills is also a great way to cut your taxes and increase your tax refund. If you pay your tuition fees for the next quarter by December 31st, you may receive valuable tax credit of up to $ 2,000 with Lifetime Learning Credit.
5. Maximize your retirement
Another great way to lower your taxable income as you build your nest egg is by contributing to your retirement savings account. Whether you are contributing to a 401 (k) or a traditional IRA, you can reduce your taxable income and save for the future too. If you are self-employed contributing to a SEP IRA, you can contribute up to 25% of your net self-employment income or $ 57,000 for 2020.
6. Issue your FSA
If you have a flexible spending account and still have money, it is a good idea to research your doctor visits. While the old ‘use or lose’ rule may not yet apply, you may only be able to transfer unused funds over $ 500 in your 2020 year-end FSA account. Your plan may also limit the amount of time you can use your money to 2 1/2 months after the end of the plan year.
7. Buy low, sell low
If you have some investments in your portfolio that have gone down in value, did you know that you can recognize your losses and use them to offset any investment gains? To do this, you have to sell the lost investments and offset your losses against your recorded profits. If your losses exceed your winnings, you can apply $ 3,000 of that to your regular income. Any additional amount is then passed on to the next tax year.
8. Make adjustments to the W-4 withholding tax
If due to changes in tax law or life changes like the birth of a child, a raise or lower salary, unemployment or a new job, you have not had the tax result you expected in 2019, now is a good time to adjust the amount of taxes withheld from your paycheck by adjusting your withholding tax on your W-4 and refilling the form with your employer. With the withholding tax calculator TurboTax W-4, you can easily adjust your withholding tax so that there are no surprises at the time of taxation.
9. Pay attention to the other dependent credit (ODC)
Do you support your parents or grandparents? How about another loved one? If you are and you qualify as not dependent on children, take advantage of the new Other Dependent Credit, valued at up to $ 500, to lower the taxes you owe dollar-for-dollar by $ 500 .
10. Collect receipts related to your property taxes or large purchases
Do you pay property taxes, pay state taxes, or did you make a big purchase and pay a lot of sales tax? You can still deduct state and local property, income, or sales taxes up to $ 10,000. In the past, these taxes were generally fully tax deductible.
If you know these tax rules, don’t worry. TurboTax asks you simple questions and gives you the tax deductions and credits you are entitled to based on your answers.
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