December is holiday season but it’s also the time of year when people start thinking about how they can save money on taxes. Filing a tax return is never a pleasant experience but taking some simple steps in December can make for a much more pleasant April. We at Kars4Kids have ten tax tips for you to consider that may help ease the pain this year.
1. Take advantage of all the tax credits that you are eligible for. The American Opportunity Tax Credit was extended through 2012, so don’t miss this one if you’re in your first four years of college. Other tax credits to be aware of are the child care and child tax credits and the earned income tax credit (EITC).
2. Save for retirement with an Individual Retirement Arrangement (IRA): contributions to a traditional IRA are tax-deductible. Contributions to a Roth IRA are not deductible but unlike a traditional IRA, withdrawals are tax-exempt.
3. Make a donation to a registered 501(c) (3) charity. A cash donation or even a car donation can help you cut that tax bill down.
4. Spend the balance in your flexible spending account (FSA). FSAs allow you to pay for health-care related expenses with pre-tax dollars but these are usually “use it or lose it” plans. Some ways to use up the money left in your account at the end of the year include stocking up on basic medical supplies like bandages and lens solution, getting the flu shot and paying a visit to the dentist.
5. Plan to file online for free. This is best if you’re just preparing a basic return; for anything more complicated, it may be worth paying a little. It’ll still be cheaper to do it yourself using one of the many online tools, like TaxSlayer and TurboTax, than to pay an accountant to do it for you. So do your homework now, know what documents and information you will need, and save time and money come April.
6. Find out if itemizing your deductions makes more sense for you than taking the standard deduction. There’s no one-size-fits-all answer to that question. Here’s a neat calculator to help you make that decision.
7. If you have a small business, make big-ticket purchases and buy new equipment in December so that you can deduct those expenses and your taxable income for the year will be lower. Hat tip: mixergy.com
8. Claim a casualty loss if you live in a federal disaster area (think Hurricane Sandy) and suffered damage.
9. Make sure you’re taking all the tax deductions that you possibly can. Tax deductions reduce your taxable income, lowering your overall tax bill.