If you have made a lot of money this year, and are worried that you are going to end up owing money when tax season rolls around next year, you can take a few specific steps right now to reduce your tax bill.
Find Organizations To Donate To
When you donate to a charitable organization, as long as you get a receipt, you can write it off on your taxes down the line. Although you can make a cash donation to a charity or charities of your choice, this is not the only way you can make a donation.
You can reduce your taxes by donating items that you already have. When you go through your house, you can donate furniture, kitchen wear, and clothing. You can also donate larger items that will help you reduce your taxes even more.
If you have a car that you don't drive anymore, instead of selling it and making a little extra cash, you can donate it and write that amount off your taxes. Although it may not seem like it, this method will most likely keep more cash in your pocket than if you were to sell the vehicle. You can also donate large ticket items such as boats and RV's to different charities.
Don't wait until the last minute to make your charitable donations. Find charities whose mission you believe in, and find creative ways to donate and reduce your taxable income by donating items and not just cash.
Increase Your Retirement Contributions
Another simple and straightforward way to reduce your tax bill is by increasing your retirement income. This method works better if you have a few months to increase your contributions or figure out how to redirect your money to your retirement accounts.
It can also take a while to set up the paperwork to process an increase in your retirement accounts with your employer, which is why it is so important to start the process as soon as possible instead of waiting till the last minute. If you wait until the end of the year, your employer may not be able to process your request in time for it to affect your tax bill.
Contributing to a retirement account is a great way to reduce your tax income. Every dollar you put into your retirement accounts, up to a specific limit set by the IRS, can be reduced from your overall income.
For 2015, the deductible limit for 401(k), 403(b) and 457 retirement plans is $18,000. For individual retirement arrangements, more commonly known as IRA's, the limit is $6,000. If you were to max out both retirement options, you would be able to reduce your income, dollar by dollar, up to $24,000. That means, if you made $95,000 this year, just by maxing out your retirement contributions, your taxable income will be reduced to $71,000. This reduction could end up moving you to a lower tax bracket, which will reduce the taxes you owe even further.
If you fear that you are going to be facing a large tax bill come next April, take action this fall to reduce your tax bill. Find reputable charities to make physical and cash donations to that you can write off. Then figure out how much additional money you need to make in order to reduce your tax bill, and start the process of maxing out your contributions. Talk to an attorney or an accountant, like those at Homer Wilson & Co Ltd, to make sure you are maximizing these two tax saving avenues. Taking these steps now will give you the time you need to reduce your tax bill without worrying or stressing at the end of the year.