Take these actions before year-end. Save money on your income taxes.
1. Make charitable contributions. Contributions you make to charities before year-end can be deducted for 2014. Donations charged to a credit card by Dec. 31 are deductible even if you don’t pay the bill until 2015. Gift checks need to be mailed in December.
2. Contribute to retirement accounts. You need to contribute to a 401(k) or similar retirement plan by Dec. 31. But you have until April 15, 2015, to set up a new IRA or add money to an existing one.
3. Contribute to a flexible spending account (FSA). The money you put into an employer-sponsored FSA can be used for qualified health or dependent care expenses and reduces your taxable income.
4. Defer income. Shift income into 2015 and don’t pay taxes on it this year. Ask your employer to pay out any year-end bonus in January instead of December; delay selling investments with taxable gains until next year; don’t take distributions from an IRA or other retirement account until the beginning of the year. If self-employed, ask clients to pay you after the first of the year.
5. Accelerate deductions. Bring as many deductible expenses into this year as possible. Pay medical bills, property tax, and college tuition, if applicable. If you make estimated state tax payments, send in your last one in December instead of January. Sell investments that have lost value, so you can deduct the losses on this year’s return. If self-employed, purchase needed business equipment before year end.
Please note that if you expect to be in a higher tax bracket in 2015, you might want to accelerate income into this year and defer deductions until next year. As with all tax matters, consult your tax professional first.