As the year comes to a close, it’s important to take stock of your finances and prepare for tax season. From maximizing deductions to minimizing tax liability, here are some helpful tax tips by Zorayr Manukyan to consider before year-end.
Zorayr Manukyan Lists Helpful Tax Tips Before Year End
1. Defer income and accelerate expenses
One of the most common tax planning strategies is to defer income and accelerate expenses, says Zorayr Manukyan. This means delaying the receipt of income until the following year and paying expenses beforehand. For example, if you’re a freelancer and you have the choice to invoice your clients in December or January, it could be beneficial to wait until next year to do so. Similarly, paying January’s rent or property tax before the end of the year can result in valuable deductions.
2. Donate to charities
Donating to charitable organizations is a wonderful way to give back to the community and also reduce your tax bill. By making donations before December 31, you can claim them on your tax return for this year. Donations can take many forms, such as cash, clothes, and household goods. Keep in mind that you must provide documentation of your donation in the form of a receipt, canceled check, or bank statement.
3. Contribute to retirement accounts
Contributing to a retirement account not only helps you save for the future but can also lower your taxable income. Depending on the type of account, contributions may be tax-deductible. For example, contributions to a traditional IRA can be deducted from your taxable income. You have until tax day (typically April 15) to contribute to an IRA for the previous year. However, contributions to a 401(k) must be made by December 31 to qualify for this year’s contributions.
4. Harvest capital losses
Capital losses occur when you sell an asset for less than you paid for it. When you sell an asset for more than you paid, it’s called a capital gain. If you have both losses and gains in your portfolio, you can offset the gains with the losses to reduce your tax liability. This strategy is called tax-loss harvesting, and it’s usually best to do it before year-end. Any unused losses can be carried over to the following year.
5. Check your withholdings
If you’re an employee, you should check your withholdings to make sure you’re not overpaying or underpaying taxes. Overpaying means you’re essentially giving the government an interest-free loan. Underpaying can result in a hefty tax bill come April. Use the IRS tax withholding estimator or talk to your tax professional to ensure you’re withholding the right amount.
6. Take advantage of tax credits
Tax credits are a great way to reduce your tax bill dollar for dollar, says Zorayr Manukyan. There are several credits you may be eligible for, such as the earned income tax credit, the child tax credit, and the American opportunity tax credit. Make sure you research which credits apply to your specific situation.
Zorayr Manukyan’s Concluding Thoughts
In summary, preparing for tax season can seem overwhelming, but there are steps you can take to make the process easier. According to Zorayr Manukyan, by deferring income, donating to charities, contributing to retirement accounts, harvesting capital losses, checking your withholdings, and taking advantage of tax credits, you’ll be well on your way to a smooth and less stressful tax season. As always, consult with a tax professional to ensure you’re making the best decisions for your financial situation.