Posted by Karen Munoz, EA

Simple Ways to Reduce Your Tax in the Last Minute

Simple Ways to Reduce Your Tax in the Last Minute

As the year winds up, many might feel it is too late to get any savings on their tax. However, no matter what you already earned as income, there are some moves you can make to reduce the tax you owe. For business owners, there are many ways you can reduce taxes.

Here are various ways you can reduce your taxes.


Defer Your Income 

As a rule, the more you can delay payment of your taxes, the better. When you defer income from the current year to the next one, it can help delay payment, reducing taxable income. 

As a result, employees who qualify for a bonus at the end of the year can request that their employer postpone payment, even though this action can save taxes in the current year. However, take note of the following scenarios

  • There could be issues from deferring income, especially if it sends you to a higher tax bracket.

  • One might need to balance any present tax savings with the future tax you owe

  • For people who aim to reduce the current year taxes, whatever little income you get from the present year is good. 


Consider an IRA Contribution 

Whatever you contribute to your traditional IRA is tax-deductible in the specific year. There are rules from the IRS which guide such IRA contributions. Take note of the following, though:

  • One can deduct the entire IRA contribution amount If you and your partner don't have workplace retirement plans covering you.

  • Based on your AGI- Adjusted Gross Income, you might have a negligible contribution if you and your partner are covered

For example, someone in a tax bracket of 37% who makes a deductible contribution of $5,500 can save up to $2,035 in taxes. Besides, you can contribute to an IRA, which can proceed all year round until the tax deadline, unlike other strategies for tax savings. 


Take Capital Losses

Any loss you have on a capital investment like a stock can help you reduce your tax. However, such loss needs to be sold at a loss, in "realizing" a loss.

  • As soon as you realize a loss, it can help offset whatever capital gains you realize.

  • For people with excess capital losses over gains, you have up to $3000 excess loss to reduce your ordinary taxable income. 

Should there be a "wash sale", Uncle Sam will not allow you to have a loss for tax. There is a wash sale when you purchase the same investment or something similar within 30 days or after taking a tax loss. In addition to the offset of the capital gains, the capital loss might nullify a considerable amount of your tax liability. 

Bunch Expenses

Business owners can take a deduction for a series of business-related costs. For people who want to reduce the current year's income tax, it is recommended to bundle your expenses as much as possible into the present year. 

Here are common business tax strategies:

  • Make whatever purchase you want to, at the year-end, not at the beginning. 

  • Pay the employee bonus when the year ends, and not the beginning

  • Expense Prepayment: for instance, you might spend $5,500 each month for the purchase of supply. Consider buying $16,500 worth by the end of the year to help you through three months. If you make a bulk purchase at the end of the year, you qualify for a tax deduction for such business expenses in the present tax year. 

Ensure to talk to a reliable business professional about your situation to help you, alongside filling such a tax form.  

 

FOR MORE INFORMATION ON HOW KAREN MUNOZ, EA CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.


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Karen Munoz, EA
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