5 Ways to cut your taxes and save money by the year-end
The holiday season is ongoing and most of us will push off the tax payments for the time being to enjoy the festivities. However, this can very costly for us later on. So, here are 5 ways to save money before the end of the year which will make it easier for you to manage your expenses at beginning of the new year:
1. Tax breaks: You will be surprised to note that there are many tax breaks which expire on December 31st. So, if you’re self employed and plan to buy a new vehicle, try buying it before December 31st. If you do so, you will be able to write off the full cost of purchasing if you use the car for business purpose. In case, you’re considering making energy efficient home improvements, try completing the work before December 31st. This will help you to get the benefit of an expiring $500 tax credit.
2. Charitable donations: If you want to make a charitable donation and want to claim a deduction on it, then do it by December 31st. Clearing of the check by the year end won’t matter but you should definitely mail it by the year end. Apart from this, if you make donations by swiping your credit cards before December 31st, you will also be eligible for deductions.
3. Consider the terms of medical FSA: In case of a medical flexible savings account (FSA), money is deducted from your salary before tax payments so that it can be put in a separate account to pay medical, dental and vision expenses which are not covered by insurance. However, as per law, any money that you don’t spend in the year and is saved, is forfeited. However, as per IRS rules, employers can give workers 10 weeks (until March 15th of 2012) time to use up their cash. But not all employers allow this grace time. If your employer is one of them, then you can buy your new contact lenses (for example) before December 31st.
4. Annual gifts to near and dear ones: You shouldn’t forget that you can give $13,000 a year as gifts to your friends and family members without it counting against the amount you can give during your lifetime as gifts. As a result, you won’t be liable for paying gift taxes. Till now, the lifetime gift tax exemption is $5 million. So, if you’re planning to gift something to a near one, do it now and take advantage of the annual gift tax exemption.
5. Set up a one-person 401(k): If you set up a one-person 401(k) by December 31st, you can make contributions for 2011 until the due date of your 2011 return with extensions (till Oct. 15, 2012). However, in order to claim this benefit, you need to operate as an unincorporated sole-proprietor and attach a Schedule C to your individual tax return.