A GUIDE TO YOUR PERSONAL INCOME TAX: LAST-MINUTE MOVES
December 31 is fast approaching. The next thing you know you need to file your income tax return. So before you get swarmed by the hustle and bustle of the holidays, here are some last-minute moves you need to make before the year ends.
One of the most effective tax strategies is to set the timing of year-end expenses and income right. Many Americans belong to different tax brackets in different years, meaning everything that falls on one side of December 31 might be taxed or deducted at a lower or higher bracket than what falls on the other side of new year.
For instance, if you expect to have two straight years where you find yourself in two various brackets, you can push all the income into the lower tax bracket year and all the expenses into the higher bracket year. That way you can save thousands as you cut the amount of taxes you will pay on your income and increase the post-tax value on your deductions.
Aside from timing, look into your charitable deductions. Uncle Sam, through the Internal Revenue Service, is generous to Americans who give cash and in-kind donations. The agency only allows a taxpayer to deduct on April 15 what he has donated during the past calendar year.
The timing of donating certain appreciated investments does not matter. The IRS enables taxpayers to gift investments (bond, mutual fund, or stock) that has gone up in value to a charity and take the write-off for the entire value. It allows the taxpayer to not pay tax on its gains, while he takes a write-off for the entire amount of the donation.
Take note of the IRA withdrawals as well. There are some penalties for failure to withdraw the right required minimum distribution from your individual retirement account, which is set at 50% of the under-withdrawn amount. Unfortunately, many people assume the withdrawal and contribution deadlines are the same. The withdrawal deadline is December 31, while the contribution deadline is April 15.
Mind the Section 179 deduction for you, small business owners. It enables you to reduce the entire cost of new machinery and equipment in the year you purchased it. You can offset a huge chunk of the net taxable income because of the six-figure limit on this deduction.
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