When tax season hits, it's often too late to do a whole lot about your tax liability. Not to mention, the complexities of tax laws can be overwhelming sometimes. Even the best of plans can leave you owing thousands if you found out that you made more than you'd intended and ended up in a different tax bracket. Luckily, there are a few things that you can still do in the last few weeks of the year to help reduce your potential tax liability before you file.
Make the Most of Your Deductions
Perhaps one of the easiest ways to control your tax liability is by increasing your deductions. If you're staring down the threshold for medical payment deductions, pay a couple of your upcoming medical bills a little bit early. That may allow you to deduct ten percent or more of your adjusted gross income for medical costs, saving you significantly on your tax liability.
Education expenses are another great way to reduce your tax liabilities. If you haven't maxed out the available education credit yet this year, pay your outstanding tuition bill before the last day of the year. Then, you will be able to deduct the tuition payment as part of the taxpayer education credit program. Since tuition payments are tax free, you'll reduce your tax liability by the total tuition you paid through the year.
Time Your Income Accordingly
Another great way to reduce your tax liability is by delaying your final payments of the year. If you have an end-of-year bonus coming that might push your taxable income into a higher tax bracket, talk to your employer about delaying the payment until after the start of the new year. That way, your bonus is on next year's income, not this one.
You can also use the same postponed payment approach for distributions from your retirement account, stock sale or liquidated investment. If you can wait until the new year for those payments, the income will be listed on next year's earnings. This is great for balancing income out if you expect that you'll earn less money next year otherwise.
When you're staring down the chance of a tax bill that you weren't expecting, the tips here can help you adjust your taxable income and corresponding tax liability. Talk with a certified tax specialist to evaluate your current income and deductions. Through this review, you'll be able to identify the best avenues for managing your taxable income.
To learn more, contact a company like Krosnar & Griffith PC CPAShare