The end of the year is a great time to make sure that you have done what you need to do to minimize your tax bill for the year. By starting before the year is over, you still have time to meet end of the year deadlines and maximize your tax-deductible contributions. There are a number of steps you can take to reduce your tax bill for the year before the year is over. Here are some of the most common actions that provide the most benefit.
Max Out Your Retirement Contributions
One of the best things to do before the end of the year is max out your contributions to your retirement account. If you want to max out your retirement savings, now is the time to start putting more money away. People that have a 401k account can contribute up to $17,500 for the 2013 calendar year. If you are above the age of 50, you can contribute up to $23,000 in 2013. Most people are not contributing amounts that are anywhere close to the limits, making it a great place to park additional money that is not earning a significant amount of interest. You can also ramp up your contributions to take advantage of tax-advantaged individual retirement accounts, including Roth IRAs and traditional IRAs.
Review Any One-Time Benefits Or Deductions Earned
There are many things that you can do throughout the year to earn one-time benefits or deductions for your income tax return. Some people increase their charitable contributions at the end of the year to max out their charitable deduction. Others purchase Energy Star certified appliances, insulation, or new windows and doors that qualify for a federal tax deduction. If you are in the market for a new car, purchasing an eco-friendly model could also make you eligible for a federal tax credit. Details about the tax credits available can be found on the website of the Internal Revenue Service (IRS) or your state taxation agency.
Estimate How Much You Will Owe
People that wait until the last minute to get their information together for filing their taxes are often dismayed to find out that they have a large tax bill that they were not prepared for. If you received income beyond your usual paycheck because of freelance work or a side business, then you might end up owing a lot of money when taxes are due. It is better to know ahead of time so you can start preparing for the financial blow. There are many people that have expressed regret for their excessive holiday spending when they see how much they owe in April for their income taxes.