If you think a year-end bonus is in the works, ask that it be paid next year. And if you get income from a closely held firm, consider delaying that dividend. If you or your spouse are 65 or older, you can deduct medical expenses that exceed 7. That high hurdle prevents most taxpayers from writing off medical costs. Deductible expenses include everything from laser eye surgery to a portion of your long-term-care insurance premiums.
Another deduction that could go away if the House tax reform plan was adopted is medical expenses, so next year, that move might not work at all. Something to consider—but don't rush your surgeon unnecessarily. Skip to header Skip to main content Skip to footer. Home taxes taxable income.
December 13, Tax Breaks. If your income has gone up or down this year, consider adjusting your final monthly child tax credit payment.
But you need to act soon. November 13, The IRS has already sent four batches of monthly child tax credit payments. Thompson, however, is quick to offer a reminder that traditional IRAs are tax-deferred—not tax-exempt. Deferred taxes eventually must be paid, presumably at retirement. Sometimes, to save money on the tax bill, you must spend money elsewhere.
Many employers offer a benefit that allows people to chip away at the tax bill using money they had planned on spending anyway, such as dependent care or medical expenses. Flexible spending plans are pre-tax plans that allow certain expenses—such as dependent care, medical expenses and health insurance—to be paid with tax-exempt dollars.
Employers deduct pre-determined, tax-free amounts from paychecks and place them in an administered account that releases the funds when the expenses are incurred. And, because contributing to a flexible spending account also reduces your gross income, your taxable income becomes even lower—keeping more in your wallet. Thompson raises two warning flags.
The first is the "use it or lose it" stipulation, which comes into play if the pre-tax funds aren't used in accordance with the rules. Let's say that Mom deducts pre-tax money to pay the day-care center, but then Grandma starts to take care of the baby. Unless Grandma operates a licensed, approved day-care center and charges for the care of the baby, any pre-tax money Mom set aside for day-care is lost.
Second, you can't use child care for a tax credit. Because the tax benefit was given in the flex-spending plan, that money cannot be used for a credit unless the amount spent exceeds what was deducted pre-tax. Other child-care expenses not paid with pre-tax money, such as some summer camps, would not be impacted. Charitable contributions offer a tried-and-tested way to reduce the tax bill—and there are a number of ways to give back beyond writing a check. Toys, books, clothes and other used household items may be donated to shelters or other charitable organizations that support the needy.
Expenses stemming from volunteer work can also be a tax benefit, but be careful about what you try to deduct: Your time itself is not deductible, but if you absorb the cost of travel to an event where you represent the charity—whether as a convention delegate or as a scoutmaster driving scouts to a campground—those expenses may be deductible.
If you buy an item such as a printer and donate it to a charity for its own use, that also may be a write-off. And remember, your total tax deductions must exceed the standard deduction before they may be applied. For taxpayers who need extra tax savings, there's a nice little tactic that Thompson recommends as a way of itemizing deductions every other year.
By "bundling" some contributions, taxpayers can put what is essentially two years' worth of deductions into a single year, vaulting their deductions over the standard threshold and thereby allowing the use of all of the smaller, otherwise-forgotten deductions.
Take, for example, the person who makes a gift to a church on a weekly basis. One approach might be to take the amount donated over the course of a year and—at the end of the year—match it with a lump-sum amount representing what would have been the next year's donations. And now that the bundled contribution has taken you beyond the standard deduction, feel free to start piling on all of those other smaller write-offs, too.
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While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Here are 12 steps you can take now to reduce your tax bill and pay the IRS only what you need for Employers generally contribute a certain percentage to this money, and those who are self-employed can always open their own retirement account.
Taking loans against your retirement fund also leads to charges and penalties. To lower your tax bill, leave your k untouched until retirement. You must start taking distributions from your tax-deferred retirement plan ideally before you turn 70, or else the IRS can charge you a 50 percent penalty on the amount of your RMD.
Distributions must be made each year before Dec. If you make charitable contributions regularly, bundling them could push you above the standard deduction and lower your taxable income.
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