With the Holiday spirit in the air, it may sound absurd to think about tax tips. However, if you consider tax season tips, it will give you certain advantages in the coming year when it is time to file your taxes. You can avail of depreciation costs, defer your income, accelerate tax deductions, bigger sales tax deductions, lower contribution limit for IRA plans, reimbursement of your costs for dependent care services are just a few benefits you can avail by following these tips. This is what you can find out.
Essential Tax Tips for the Holidays You Need to Do
Taxes can be expensive and confusing so we’ve rounded up these 11 essential tax tips that you must know as a taxpayer.
Tip 1. Sell Assets
Tax impact of disposing of capital assets?
- Changes, like scrapping, selling, or removing a capital asset from your business, need to be reported to the IRS.
- GOOD NEWS: Long-term capital gains are taxed at a lower rate than other income.
- BAD NEWS: You may have ordinary income from expensing or depreciation.
Tip 2. Improve Your Home
Repair vs. Improvement
- Improvements add value to the home, prolong the life of the home or adapt it to new uses.
- Repairing is something that simply keeps your home properly maintained.
Add to the Tax Basis
- Improvements may reduce the tax you owe if you sell your home for a profit!
- Home improvement costs can also add to the value of your home! The tax basis of any asset is usually the cost but when you buy a house.
Depreciate the Costs
- Using a portion of your home can also depreciate home improvement costs.
- Once you qualify, you can deduct the cost of any improvements you make to that part of your home.
- Renting out part of your home can also depreciate your home improvement costs.
Tip 3. Spend Your FSA
- Reimbursement of qualifying out-of-pocket medical expenses.
- Can be issued as a debit card for use on qualified services and items.
- A full year’s worth of deductions will be available for you to use on medical expenses when the plan starts.
- If your employer offers a general purpose FSA, you can use it for any eligible health expense.
Dependent Care FSA
- Reimbursement for dependent care services expenses.
Tip 4. Be Charitable
— Charity Navigator (@CharityNav) November 30, 2017
- You may be entitled to a charitable contribution deduction against your income tax if your donation is made to certain qualified charities.
- Donate old equipment, furniture, and clothes that you no longer use instead of throwing them out.
- Document donations and contributions.
Tip 5. Do a Mock Return
- Get an estimate of how much your tax will be by entering as much information as you can on your trial return
- Use your most recent pay stub for withholding tax and income data.
- Check the websites of your tax-related accounts.
- Fill-in all necessary information on the IRS forms.
Tip 6. Defer Income
- If you’re expecting a big bill on a certain year, consider deferring income from that year.
- If you’re self-employed, use a tracker to time your jobs including those you are billing for.
- If you’re an employee, if possible, when you get a bonus, ask your boss to give it to you early next year.
Tip 7. Make House Payments Early
- Consider paying for next year’s real estate taxes early so you can write off the expense this year.
- Pay for your property taxes early to accelerate your tax deductions for the year.
- As long as your income is within the limits, you don’t have to pay the alternative minimum tax when paying for your property taxes early.
Tip 8. Bunch Your Expenses
- Set up a bunching strategy to maximize deductions.
- Push as many of your allowable expenses into one tax year as you can.
Tip 9. Buy a Car
- If you’re in the market for a new car, consider buying one by December 31.
- You’ll pay less, as dealerships are ready to bargain to clear their lots.
- It will give you a bigger sales tax deduction when you file your taxes next year.
Tip 10. Get Ready To Retire
- Although they are offered at different times, most retirement accounts have tax benefits. The main difference is whether contributions are considered to be tax deductible.
- The 3 main types of retirement investment options:
- Offered by many employers in the private sector
- You can contribute a reasonable amount toward your retirement
- Similar to the 401(k), and with the same limits
- Generally offered to state and non-profit employees
Individual Retirement Account (IRA)
- You can open an IRA on your own
- Contribution limit is lower
Tip 11. Hire a Pro
- Consider whether you will need some tax help, for setting up a tax planning strategy early.
- Take the time to figure out just what professional tax help you need.
- Don’t hire someone whose fee is tied to how much of a refund you’ll get.
Keep these essential tax tips in mind and you can’t go wrong! Watch this video:
For more tips on how to manage your taxes, visit taxhelpsol.wpengine.com
So before you go full blast with your holiday cheers, why not apply some or, if not all, these tax tips this holidays season? You will reap what you sow, and if you start sowing today you will be reaping the rewards next year. Have a jolly season!
What do you think about these tax tips? Let us know in the comments section below.