As the end of the year approaches, take some time to consider strategies that may help reduce your tax bill. Dust off last year’s tax return, put on your thinking cap and follow these tips to save on your year-end taxes:
• This year, Congress passed the Making Work Pay credit, which gave every worker a $290 tax credit. The IRS changed the withholding tables to accommodate this new credit so your actual tax liability may not match your withholdings, especially for a married couple. When you check if your withholdings are adequate, make sure you are not underwithholding an amount that could trigger the penalty.
• Check your potential alternative minimum tax (AMT) liability, as the AMT minimums don’t keep pace with inflation. Certain items, such as large medical expenses and large incentive stock options, can be triggers. Consult a tax professional if you think you’ll be subject to an AMT liability. If you've been close to being subject to the AMT in the past, it is critical that you review this before year end as there still may be time to take action.
• If you think you will be in a lower tax bracket in the future, consider delaying deductions. You can delay income by deferring compensation or bonuses and accelerate deductions by paying alimony or medical expenses early, or by pre-paying state income, real estate taxes or making charitable donations.
For other useful tips on taxes year-round, visit the Tax Planning section of the 360 Financial Literacy website.
Visit www.FeedthePig.org for more money-saving tips!
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