How to Save Taxes at Year End

10. Eliminate it.

Ask your employer for a non-taxable fringe benefit or expense reimbursement instead of a bonus or raise. You could be receiving several hundred dollars per month in reimbursements for a home office, auto mileage, travel, and education. These payments are tax deductible to the employer, but they are not taxable income to the employee.

9. Stall it.

Arrange with your boss or clients to be paid in January instead of December. This defers the taxes an entire year. Watch out for the "doctrine of constructive receipt," however. If you have an undisputed right to the money before the end of the year, you must report the income. It does no good to "hold the check" yourself.

8. Speed it up.

Accelerate purchases for deductible items that you are going to need next year. Purchasing business assets may also increase deductions for this year.

7. Give it away.

Clean out the closet and the garage and get that stuff over to a charity before New Year. You're doing yourself and your community a favor. Make a list of what you contribute, and get a receipt proving condition and value. You should make this a monthly habit.

6. Take it off now.

You can deduct your winter property tax bill if you pay it early, before year-end. No harm in paying a bill early once in a while. The same for your January mortgage payment — which pays the December interest. But watch for AMT (Alternative Minimum Tax)! If you are a high income taxpayer (say, over $80,000) with large itemized deductions already, you may be in AMT. If you aren't sure, call us at 734-994-1288.

5. Just take it.

If you own a closely-held corporation, you must reimburse yourself for out-of-pocket expenses before year-end for the corporation to get the deduction. If you don't reimburse yourself, the deductions are claimed on your individual Schedule A and must exceed 2% of your income before a deduction is triggered.

4. Get rid of it.

You are allowed to make nontaxable gifts of $12,000 per person per year. Transferring assets to other family members also transfers the income on those assets to their lower tax bracket. If you are between the ages of 30 and 65, chances are your children or your parents are in a lower bracket than you are.

3. Pay now instead of later.

If you have money in an IRA, you may convert it to a Roth IRA by paying the tax on it now. Later on, when you take the money out for retirement, it will all be tax free no matter how much it has grown. If your income was low this year, which was the case for many Michigan residents, the tax you pay on the conversion may be very small.

2. Pay yourself.

Now is the time to start making your retirement plan contributions - IRAs, Roth IRAs, SEP-IRAs — and setting your payroll deduction for next year's 401(k) or 403(b). Even though you may have until April 15, don't wait 'til the last minute. Take action now while you still have plenty of time to handle the paperwork and assemble the money.

And the number 1 year-end tax tip…

1. Harvest your losses.

You probably have a few losers in your stock portfolio. The IRS allows you to deduct up to $3,000 of these losses each year, but you have to sell the stock to get this deduction. A $3,000 capital loss may save you $1,170 in taxes when used against ordinary income.

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