By this point in the year, you may not think you can do anything to lower your 2011 income tax burden.
With a little thought and some action, you could make a sizeable dent in the tax bill you owe Uncle Sam.
Selena Maranjian of The Motley Fool has 12 last-minute, tax-saving moves. I’ve compiled several of the good ones.
- If you’re expecting a large bonus at work in the final days of this year, ask your employer to pay it in January. Or, if you bill people for your work, consider waiting until January to send out invoices for work this year. Both tactics will lower your taxable income.
- If you have a mortgage, make your January payment in December to deduct the interest on your 2011 tax return. However, be aware that some lenders won’t allow you to do this. Instead, they will apply your early payment entirely to principal or will not apply it to interest until 2012.
- Make a charitable donation before Jan. 1 to get the deduction. Besides cash, you can donate stock that has appreciated to your favorite charity. If you’ve held the stock for more than a year, you won’t owe tax on the appreciation, and you can deduct the full value of the stock.
- If you own stock that has dropped in value, you can sell it and realize the loss. That loss can offset taxes you’ll owe on stock you sold that appreciated.
- If you’re considering selling a mutual fund, see if it has already made its dividend and capital gains distributions, which often occur near the end of the year. If the mutual fund hasn’t done so, sell before it does. That way, you’ll avoid paying taxes on the dividend or distributions.
- Consider making energy-saving improvements to your home before year’s end. You may get a tax credit.
- If you have a Health Savings Account, you can make an entire year’s worth of contributions in December, lowering your taxable income.
- Make a contribution to an IRA. Most people can contribute up to $5,000 a year to a traditional or Roth IRA. But those 50 and older can give up to $6,000 a year. You actually have until April 17, 2012, to make your 2011 IRA contribution. But the sooner you do it, the more tax savings you can realize.
You may not feel like poring over your finances during the Christmas season. But spend a little time looking for tax deductions and credits, and you could save a bundle on your IRS bill.
By means of this publication, the author is not rendering business, accounting advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect you.