‘Tis the season to want to think about fun and family, presents and good food. Thinking about year-end strategies for your upcoming tax return is probably not on your list. But, whether you were naughty or nice over the past year, a little bit of year-end planning could save you a lot of green in the Spring. OK, we’re not trying to add to the stress of the holidays. Everybody knows that there’s plenty of that to go around. But, there are a few year-end strategies that you really should consider in your spare time, if you have any of it available during these last few weeks of the year.
Now, we all know that the best write-off is to give birth prior to midnight on New Year’s Eve but, of course, not everybody is in a position to do that. Here are a few other year-end strategies that can also be very lucrative next year when you file your taxes:
You’ve probably heard this before ad nauseum but it is the most significant step in your year-end tax prep. If you’ve found yourself being really lazy about keeping track of your expenses and just tossing receipts in your desk drawer, kitchen junk drawer, or even just a shoebox, getting organized is a top priority. This way, when it’s time to go see your account or tax preparer, you can be proud that you’re not showing up with that old shoebox and asking him or her to spend valuable time (and your money) going through all of them to get a total for each expense category. So, this step helps save time and money plus it helps you save face with your accountant.
OK, in theory, you should be reconciling your bank statements every month but we all know that sometimes that may not happen. So, reconcile them all now and you can close out the year both organized and reconciled.
Getting Serious About Retirement
Another method for lowering your taxable income for 2017 is contributing to a retirement plan, such as:
- SIMPLE IRA
- Deductible IRA
You only have until the end of 2017 for making 401(k) and 403(b) contributions or 2017 but until April 16 for making contributions to an IRA, as well as certain other plans.
You also want to purchase certain items before the end of the year so that you can write them off and those items include but are not limited to the following:
- Hearing aids
- New prescription glasses and contact lenses
- Medications you’ll be needing in 2018
- Large purchases where you pay sales tax
Donating household goods and clothing to charities before the end of the year is good because it’s tax deductible. Be sure that you acquire a receipt from the receiving organization and be sure to bear in mind that this deduction will be limited to the current fair market value (FMV) of the donated items i.e. approximately what they might sell for at a garage sale. Cash donations, of course, are much easier to figure. Just make sure to keep receipts or canceled checks for all of them.
This is a very useful and often forgotten deduction. If you work and pay for childcare, you can deduct the amount you paid for the year. Just be sure to be armed with the caregiver’s pertinent info, including their social security or tax ID #. This isn’t something that you want to put off until tax time in case it takes some time and effort to acquire this info. With professional organizations like daycare centers, it’s usually pretty straightforward and they may even issue statements at tax time. With friends, neighbors, or relatives, it may not be quite so easy. And, if you didn’t advise your mother-in-law, for example, that you would be reporting the deduction which then becomes income for her tax return, you might have to do some negotiating.
Now, this is one that you probably won’t want to get into over Christmas dinner but it is something that you should try to get straight before the end of the year. Many couples when they split up and have dependents end up fighting over who gets to claim them. Technically, the child should live with the parent who is claiming them for at least six months of the year. That doesn’t stop parents and even other relatives from claiming the dependent. Right or wrong, often a non-custodial parent claims the dependents. And, always remember, he who files first gets the tax break. It may get overturned later in the year by submitting proof like school info, etc. but it can be a real mess and take many months. So, it’s always better to get those things straight before tax time and also to file early.