Ready for some good times?
I love the holidays. Lights. Friends gathering. Tax planning.
I know what you’re thinking: one of those three doesn’t belong… but tax planning CAN be a whole festival of fun, even for creative people, because it can save you lots (and I mean lots) of money. Just like holiday shopping, though, there’s a clear deadline to tax planning. If you don’t want to miss out on the best tax “deals” you have to move on many of these tasks by December 31st – before the sun sets on 2014! (Okay so maybe I wanted a reason to use this beautiful photo…)
Like anything involving the government or numbers, many of my clients freeze whenever we begin talking about taxes. The first step in this game is to relax! Tax planning, believe it or not, can be easy to understand. Plus, the lessons you’ll learn will last your lifetime. As the government makes changes I’ve found I only have to adjust my thinking slightly.
Here are five tips to help you save some money on taxes:
- Charitable donations. I think a big part of the holiday season is giving to charities, but luckily, those who give also receive a tax bonus from the government. If you haven’t given yet, this is a chance to help out a cause you care about and score a tax deduction if you itemize on your return. No cash? Clean out the closets and donate items to charity. You’ll need to keep records of how you came up with the amounts for items you donated (especially if you’re giving over $500 worth of gifts in kind).
- Investment sales. If you own stocks, mutual funds, or exchange traded funds and have losers in your portfolio, now might be the time to turn those lemons into lemonade. You’ll be able to claim losses in your portfolio (as long as the losses aren’t inside a tax shelter like an IRA or 401k).
- Big income year? Try to defer income. If you have a big client who’s due to pay you at the end of the year do both of yourselves favors and delay their payment until 2015. If you expect to make less money next year you’ll be able to keep yourself in a lower tax bracket and keep your hands on more of the money.
- Can’t defer income? Build your business. If you had a big year but can’t delay client payments from your craft (or elsewhere) take this opportunity to buy supplies. Use a tax professional to help you learn how to write off the cost of your equipment. Big ticket items like computers might be amortized over several years.
- Start a retirement account. While you have until tax filing day for many types of retirement accounts, you shouldn’t forget your financial future. End the year right by opening a Roth IRA, contributing to your traditional IRA, or, if your craft showed a profit this year, exploring a small business retirement account. Two popular choices are called the SIMPLE and the SEP. If you’re looking for places to shelter retirement money, both of these plans may allow you to sock more away for your future than an IRA.
…and even more!
These aren’t the only moves you’ll want to make before year end. If you’ve satisfied the deductible for your health plan for the year, schedule doctor’s visits so that there’ll be lower out-of-pocket expenses. If you have a flexible account through your job, you may have to spend the money you’ve accumulated by December 31st. Take advantage of those funds so you don’t lose them!