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End of Year Tax Tips for Taxpayers
SOUTHFIELD, Mich. – Now that the holiday season has arrived, the last thing on the minds of consumers is probably the tax deadline. But there are many steps taxpayers can take before the end of the year to increase tax breaks and ensure tax returns are maximized.
“There are many opportunities taxpayers can take advantage of right now which will pay dividends once they are ready to file their taxes in 2016,” said Venar Ayar of Ayar Law Group. “Whether it’s making a last-minute tax deduction by donating to a charity or even contributing a little extra income to retirement accounts, it’s never too early to begin preparing for tax season.”
Some of the best ways to save hard-earned income including deferring income, taking last-minute tax deductions, contributing to retirement accounts and checking flexible spending accounts.
If employees think they will be in the same or a lower tax bracket next year, it may make sense to defer year-end income into 2016. While it would be difficult for taxpayers to postpone their income, it might be possible to defer a year-end bonus into the following year. This would allow employees to avoid taxes on the bonus in 2015. Those who are self-employed or freelancers can also delay billings until late December to make sure they will not receive taxable payment until the next year.
Taxpayers may want to lower their tax bills by taking last-minute tax deductions. During the holiday season, charitable donations are a great way to get a deduction while giving back to those in need.
Contributing the maximum amount to retirement accounts such as a 401(k) and/or IRA is recommended because they grow at a considerable rate compounding over time free of taxes.
Flexible spending accounts are benefits offered by companies that let employees contribute part of their income to an account, which can be used to pay for medical bills and other needs. This income avoids taxes, but is forfeited at the end of the year if it goes unused. Some companies offer a grace period, which allows the income to be used in the following year as well. If not, taxpayers are encouraged to take last-minute trips to the pharmacy or dentist to use the funds before they are forfeited.
Paying winter tuition now, taking IRA distributions, reviewing portfolios and planning itemized deductions are a few more ways taxpayers can ensure they maximize their tax returns before the end of the year.