Now that the year is almost over, it’s the perfect time to boost your tax efficiency with a few extra deductions. The good news is that there is still time to reduce your tax liability for this year — as long as you act fast.
Here are 5 tax deductions you don’t want to miss before the end of the year:
If you itemize your deductions and are trying to bring down your taxable income a little bit, you can accomplish your goal and help a worthy cause by donating to charity. Whether it’s tithing for your IRS-recognized religious congregation, or a cash donation to the local food bank, it’s possible to receive a tax deduction for your generosity. You need a receipt to take the deduction, so don’t forget to ask for one.
You can also donate items in good condition to charity. Itemize what you have, figure out the current market value, and take it to the local charity thrift shop. Ask for a receipt in the amount of the value of your goods, and you can deduct the total from your income. You can also deduct mileage if you drive your car on behalf of charity.
Learn More: Valuing Non-Cash Donations for Taxes
In order to take the charitable contribution, you need to itemize your deductions using Schedule A.
2. Investment Losses
Do you have some losing investments this year? If you have assets that have lost value, now is a good time to sell — as long as you have a good reason to believe that the fundamentals have changed. If you are rebalancing your portfolio, or if you want to unload some fundamentally unsound losers, you can sell at a loss.
First of all, your capital losses can offset any capital gains you realized this year. After that, if you still have losses left over, you can use up to $3,000 of that to offset other income. If you still have losses, you can carry the amount over $3,000 forward to another year. Capital losses can be carried forward indefinitely, so keep good records.
3. Retirement Account Contributions
If you contribute to a non-Roth qualified retirement account, you can enjoy a tax deduction. A tax-deferred investment grows more efficiently over time, so not only are you getting the tax deduction, but you are contributing to your future comfort in retirement. Make sure you stay up to date on the IRS contribution limits for the account you choose. Also realize that there are phase-outs associated with the amount of your contribution that you can deduct for some accounts, notably IRA accounts.
Resource: Current 401k and IRA Contribution Limits
An IRA allows you to make contributions up to April 15 for the previous year, so keep that in mind as you prepare your taxes. You might be able to squeeze in one more deduction if it makes sense for you. If you plan to open an IRA, here is a list of brokers that offer IRA accounts.
4. Health Savings Account Contributions
Do you have a high deductible health care plan? If so, you might be eligible for a Health Savings Account. Your HSA is your money, and it rolls over from year to year. You will receive a tax deduction for your contributions. Plus, the money grows tax-free as long as you use your withdrawals for qualified health care expenses. Check the retirement contribution limits with the IRS. The good news is that you can contribute more to your HSA than you can contribute to an IRA.
This is a great way to save for the future, because you can use the money for health care costs at any stage of life. If you withdraw money for non-qualified expenses, the rules are the same as for a traditional IRA. And, as with a traditional IRA, you can contribute to your HSA until April 15 following the year that just ended.
5. Business Deductions
If you own a business, and you have been planning on making some purchases, now is a good time to fit them in. Your business deductions can offset your business income, as well as your other income. Business deductions include office supplies and equipment, business-related travel, the business use of your home, subscriptions to trade publications, and advertising costs, among others.
Ask a tax professional if you are unsure about the deductions for which you are eligible. Just because we’re approaching the end of the year, doesn’t mean it’s too late. Spend a little extra money now, and you could save on taxes in the new year.