If you’ve had a change in your tax scenario for this year (change in marital status, income, or home ownership, for instance) or if you just weren’t happy with last year’s tax outcome, now is a good time to review your year-end tax strategies. Here are some suggestions for grabbing some year-end deductions:
Pay for spring semester: If you’re paying your own college tuition or paying for your child’s tuition, paying for spring semester during the “old” tax year could help your bottom line by lowering your overall tax liability.
By paying spring tuition now, you could be eligible for the Lifetime Learning Credit, or the American Opportunity Tax Credit, depending on your individual financial circumstances.
For example, the American Opportunity Tax Credit is worth up to $2500. Up to 40 percent of the new of the credit is refundable. This credit is designed to make the Hope Scholarship Tax Credit available to a larger range of taxpayers, including those who owe no taxes.
Donate to charity: If you’ve been dragging your feet on cleaning out your closets, a tax deduction for charitable contributions might be just the incentive you need to get started. Qualified charitable organizations typically accept:
- Gently used household goods, toys, and clothing
- Vehicles (always check ahead of time. Not all organizations accept vehicle donations)
- Stocks, bonds, and mutual funds
If you donate any portfolio assets (stocks, mutual funds, bonds) to a 501 (c) (3) charitable organization, you won’t be hit with capital gains taxes.
As with any deduction, be sure to get a receipt or statement from the organization to verify that you did in fact make the donation.
Make adjustments to your health care coverage: Love it or hate it, the Affordable Care Act will be part of the tax landscape for the foreseeable future. If you’ve been skimping on your insurance coverage or skipping out altogether, you could get hit with a penalty under the ACA.
Now is a good time to either purchase coverage or upgrade your existing coverage to avoid the ACA penalty. Keep in mind you may be eligible for exemptions from this requirement, so it’s a good idea to do some research, especially if you find yourself unable to pay for coverage due to your financial circumstances.
Open a new IRA: If you had a sizable jump in income that leaves you with money left over each month, now might be the time to open a new IRA. Just like your 401K at work, IRA contributions will not be considered income, so you won’t take a tax hit for making contributions.
Each of these deductions will need to be itemized on your return, so if this will be your first year itemizing your deductions, get all of your receipts organized ahead of time so you’ll be ready when it comes time to file your tax return.
The end of the year is a great time to review your tax strategy for the year and to make some last-minute contributions or adjustments. If you’re unsure about your specific tax circumstances, check in with a qualified tax pro for guidance. A CPA or other financial professional with a tax background will be able to assist you in claiming the right deductions for your individual circumstances.