Last week Joe at Average Joe wrote about five tasks that can help you save money in the fourth quarter which got me thinking about how specifically you can do so in relation to taxes. Free tax software is a great starting point, but before I go any further, let me give the disclaimer that I am not a tax adviser and to consult with one before making any decisions related to your specific tax situation. Now that that’s out of the way, the motive behind my sharing this post is seeing too many people wait until the last minute to save money on taxes at year end. My step-father has a saying “Prior planning prevents p#ss poor performance.” He calls it the five P’s and I hated hearing it growing up. But now that I am on my own I can appreciate the sentiment behind the statement. We have roughly 11 weeks left in the year, so my question to you is how are you going to act to save money on your taxes before then?
Get Rid of the Deadbeats
If you’re into stock investing, then you’re likely to have some losers. I know that it can be painful to take losses, but if you have some real underperforming stocks, why not dump them? You can take up to $3,000 in losses against your taxes each year, which very well could help you save money on taxes. If you have over $3,000 in losses then you can carry those losses into future years. This won’t help you with losers in a retirement account, but if you have any after tax investment accounts it could potentially help you.
Give to Your Favorite Charity
Giving to a charity is a great thing to do, especially if it helps meet needs in your area or is one that has a special place in your heart. These gifts can be a great tool to help you save money, especially if you itemize your deductions. Just remember to keep all of your receipts, especially if you give to organizations like Goodwill. Typically if you give over $250 to any one organization they’ll send you documentation to go with your taxes.
Keep an Eye Towards Retirement Accounts
Year end is a popular time for people to fund or open retirement accounts. What many don’t consider is that it takes time for the accounts to be opened. Many brokerages can take several days to get them opened near year end and going into tax season. If you’ve not put money towards retirement during the year, this is a great time to do so. Many IRA accounts, particularly a Traditional IRA, will allow you to write off your contribution which is a great way to save money on taxes. Just don’t wait until December 31 to try to open and fund a retirement account.
Save Money For Future Needs
What do you do if you’re in the enviable position of having money at year end and no idea what to do with it? You could give to me…I kid, I kid…seriously though, this is a great opportunity to look at what needs should be covered. There are a variety of things that could be done, from building up your Emergency Fund, to saving money for home repairs, to something fun like a vacation. Another great option is to open or fund a Health Savings Account to save for future medical expenses. Year end is a great time to look at what might be coming up, or seeing where you fell short in the current year and make adjustments as necessary.
This is not an exhaustive list of how you can save money on your taxes, but intended to get us thinking about how we can be frugal when it comes to our taxes. Keep in mind that many of these money saving things must be done before December 31st, so please don’t wait around until the last minute.
As a self-proclaimed planning addict, I’ve already started on many of these things. What am I missing? How do you save money on taxes before year end?
Photo courtesy of: Craig Toocheck
These are great tips! I am also a planning addict! This year, we don’t have a ton of deductions and there’s not much we can do about it…but it’s always good to look ahead and try to maximize your situation!!!
Holly@ClubThrifty recently posted..What I Want My Kids to Know About Money
Agreed Holly. I try to look for anything and everything that we can write off to help out. I’d much rather keep my money.
Great tips John. Retirement accounts and charitable giving are great ways to lower your overall taxable income.
DC @ Young Adult Money recently posted..Working for a Large Corporation vs. Working for a Small Business
Thanks DC. They benefit you by saving on tax money plue you get to save for retirement.
This is definitely something that I need to think about! I need to work in some extra deductions because I might actually owe for this year.
Michelle recently posted..Retiring Abroad?
Oh no! I hate owing the IRS! I do all I can to at the very least breakeven as opposed to paying the government more money.
If you don’t itemize, which is most likely the case for anyone who doesn’t own a home or have really high medical expenses, then giving to charity will accomplish nothing tax-wise. The only way charitable donations will be of any benefit is if you itemize since they are a Schedule A deduction. It’s important to make that distinction before going out and dropping hundreds of dollars or giving things away solely for the sake of the deduction.
Eric J. Nisall – DollarVersity recently posted..Prepaying Expenses May Not Be Your Best Option
Thanks for pointing that out Eric. As I noted in the post, you must itemize in order to realize the tax savings of giving to charity. On a separate note, I hope this is not something that goes by the wayside with much needed tax reform. Thanks for stopping by!
I like to throw a bunch of money into my SEP IRA so that it will decrease my taxable income.
Sean @ One Smart Dollar recently posted..The Cost of Halloween Doesn’t Need to Be Scary
We’re the same Sean. We actually need to open SEP’s as this is the first full year where we are self-employed.
I give to charity and have a tax free savings account that I should max out too. I am planning on giving my sister 10 hours of cleaning service (she has a big house and a toddler) for Christmas, and that is 50% tax deductible
Pauline recently posted..Dear Google, I love you! Please love me back!
That’s awesome you can do that Pauline! If you were here in the States, I might have you “help” us too.
Ugh, I can not believe the dreaded tax season nearly is upon us. I try to get my deduction paperwork organized and in order. Bloggers should keep detailed records of all their expenses if they are generating income from their sites. Even car mileage for things like financial library book runs will count, and every little bit helps!
Jennifer Lynn @ Broke-Ass Mommy recently posted..Droplets of Summer
I feel the same way. I hate dealing with tax season, but it goes much smoother by planning it out and not waiting til the last minute. My wife and I run our own business, so I am always looking for many of the things you mentioned to be able to grow those deductions.
Some great tips dude – will have to come back to these next year when I file my taxes for the first time
Savvy Scot recently posted..The New Gender Directive and Your Pension
Thanks. This list only, unfortunately, scratches the surface. Which is why we pay someone to do it now.
Great ideas on planning. I am probably doing a little of all that this year. If you give over $250 to a charity, make sure their receipt says they are a 501 c 3 organization and no goods or services were received. Our office also stocks up on supplies at the end of the year if we are going to owe taxes.
Kim@Eyesonthedollar recently posted..Can Money Management Help In Any Way With Debt Consolidation?
That’s a great point Kim, thanks for bringing it up. We do a bit of the supply stocking up as well since we run our own business.
I save the most $$ on my taxes from 2 areas. My mortgage deduction and my charitable giving. It can sometimes be crazy how fast these 2 add up to a refund.
Jason Clayton | frugal habits recently posted..Frugal Habits of the Rich and Famous
We’re very much the same Jason. That and all the expense we get to write off for having our own business.
Good tips. I contribute to my retirement accounts each month, but depending on how much my take-home pay is from the new job, I might increase it.
CF recently posted..Our early retirement plan
Thanks CF. That’s a great reminder to be cognizant of how you can increase things like retirement savings to help lower your tax burden.
Great tips! As far as donating to charities go, the amount to get anything past the standard deduction is out of my league. I’d say the best reason to give is because you want to help out, because the amount you have to give is too big to merit the deduction in most cases.
femmefrugality recently posted..Know What Really Grinds My Frugal Gears?
I totally agree. I typically view it as a side benefit of being able to help out a charity that I care for.
Pingback: Financial Carnival for Young Adults – 35th Edition - 20s Finances
These are good tips but most require that you itemize. The saver’s credit is a good way to save on taxes though, since it is above the line. You can wait until 2013 to do your taxes and see if you made little enough to get the credit.
Harry @ PF Pro recently posted..My Own Price Protection on Southwest Airlines
Actually the only one that requires you to itemize, in general, is the charity deductions. For those you have to itemize to take advantage of the tax deduction. But, the others you should have no problem deducting if you don’t itemize.
I always donate to the Goodwill when I replace clothes or furniture. But, we never itemized or deductions because we don’t own a house. The savers credit is new to me. So, I’m off to learn about that. Great post btw!
Jackie recently posted..How to Help Your Husband Thrive During Unemployment
Yea, unfortunately that is one of the things you don’t get if you don’t itemize. I’ll be interested to see if that deduction will stick around with possible impending tax changes. Thanks for stopping by!
Pingback: Weekly Wrap-Up, Mentions and Good Reads #19
Pingback: Tax Carnival Ecstasy - October 23, 20122008 Taxes - Free Tax Filing Options
Pingback: Carnival of Wealth, Calvin Coolidge Edition | Control Your Cash: Making Money Make Sense
December has always been the “Dump the losers” month for me when I had positions that were in a loss and no hope of recovering. It helped offset the shadow income from a lot of the mutual funds I have been in. Charitable giving has also been an annual tax saver for me. It doesn’t have to be cash, old furniture and clothes you no longer want (or can fit in) can pay dividends at tax time if you contribute them to a charitable organization.
Jose recently posted..Estate Planning – It’s Never Too Early