How to Weather the End of the Fiscal Year – 8 Ways to Pay LESS Taxes for 2016!
The New Year is almost upon us, which to deal-hunters, finance-mavens, and frugal-livers means just one thing: It’s the end of the fiscal year. In just a few short months, tax season will be upon us, which means the next few weeks aren’t just the holiday season, they are also our last chance to tidy up our finances, so our taxes are easy and breezy. The following last-minute money moves will help your tax return look clean, tidy, and (most importantly) financially manageable, saving more of your money for your own use.
1. Add to Retirement Savings
Though you can make deductible contributions to your individual retirement account (IRA) until you file your taxes in the spring, 401(k) contributions are monitored by calendar year, which means you need to add as much to that retirement account as you can before January 1. However, there are limits to how much money you can stash in your retirement savings: $5,500 for IRAs and $17,500 for 401(k)s.
2. Prioritize College Savings
Your kid might still be in diapers, but before you know it, they will be considering going to college. The sooner you start putting money into a college savings account, the better off your kid will be when they finally earn that degree. Though it might be tempting to overspend on toys and goodies in the holiday season, you should try to curb superfluous kid-related spending and put any excess into college accounts.
3. Take Advantage of Tax Credits
Even if your bill isn’t due until after January 1, you should spend December charging tax-deductible purchases. For example, if you are self-employed, you might consider acquiring the supplies you need for next year using your credit card, so you can discount your business-related purchases on your taxes. Additionally, the federal government provides credits for energy-efficient home improvements, and many states offer credit programs you might already qualify for.
4. Donate, Donate, Donate
If you are like most taxpayers, the standard deduction will provide more value than itemizing your deductions. However, if you donated a substantial amount this year – and you have still more to give – you should contribute as much as possible before January 1 to maximize the amount discounted from your taxes. Money isn’t your only donation option; large donations, like furniture or automobiles, retain quite a bit of value, so by donating your old boat, you can do good and receive an enormous deduction without spending a dime.
5. Consider Upcoming Vacations
Though next summer might seem years away, it is vital you start planning your vacation in the dead of winter. First, by knowing the costs of your upcoming vacation, you can begin saving and be certain you’ll have enough for the adventures you want. Secondly, you can get deals on typical vacation expenses, like plane tickets or hotel rooms, by booking early. This totally goes along with the ideas I shared in the 20 Day Budget Challenge where you need to have your financial goals drive your budget.
6. Review Your Insurance Rates
Before the New Year brings another insurance payment, you should check in on your policies and rates. It might be that your auto insurance doesn’t give you enough coverage or your life insurance won’t pay out in certain contingencies. If you have significant assets, you might seek an umbrella policy, which protects you more than typical auto and homeowner’s insurance and also could lower your overall insurance payments – saving you money now and potentially down the road.
7. Use Your FSA
Not everyone has a flexible spending account for health-related expenses, but if you do, you should head to the doctor’s office, quick. Most employers offering FSAs empty out those accounts come January 1, which means your health care money goes to waste. Before the New Year, you should order a new pair of glasses or schedule a teeth cleaning – whatever it takes to make use of your FSA.
8. Adjust Your Tax Withholding
By withholding money from your paycheck to pay your taxes, you usually ensure a healthy tax refund come May or June. However, if you experienced a life-changing event during the past year – perhaps you got married or had a child – you might need to alter your withholding to give you access to cash right away. Alternatively, you might be able to increase your withholding, earning you an even larger refund come next tax season – but this money might be put to better use in an investment or retirement fund.