Follow these 5 simple strategies now to cut your tax bill.
Money Girl
247 MG 5 Year-End Tips to Save Money on Taxes
Hey, Fidelity. How can I remember to invest every month? With the Fidelity app, you can choose a schedule and set up recurring investments in stocks and ETFs. Oh, that sounds easier than I thought. You got this. Yeah, I do. Now, where did I put my keys? You will find them where you left them. Investing involves risk, including risk of loss, Fidelity brokerage services LLC member NYSE SIPC. Imagine earning a degree that prepares you with real skills for the real world. Capella University's programs teach skills relevant to your career so you can apply what you learn right away. Learn how Capella can make a difference in your life. Hi, friends. Thanks for downloading the Money Girl podcast. I'm Laura Adams. The end of the year is a busy time with holiday preparations and celebrations. December 31 is also an important deadline for your personal finances because it marks the end of the tax year. Before you ring in the new year, follow these five quick and dirty tips to save money on your taxes. Tip number one, make a charitable donation. When you make a donation to charity, you may also be eligible for a tax deduction. That's a winning combination in my book. Consider making a charitable donation as an alternative to giving gifts during the holidays. To make your charitable donation tax deductible, you have to donate cash, write a check, or make a credit card charge to a qualified organization before the end of the year and itemize deductions on your tax return. I want to make sure you understand how itemizing works because it can save you a bundle. Every year, you can claim either a standard deduction for your tax filing status or you can list out your deductions on Schedule A of IRS Form 1040. For example, the standard deduction for a single taxpayer is $5,800 for 2011. So if you're single and spent more than $5,800 during the year on certain types of deductible expenses like charitable contributions, mortgage interest, and a percentage of your medical care, then you'll come out ahead by itemizing. Most people take the easy route and just claim the standard deduction each year, but guess what? Many of them end up paying more tax than they should, so be sure to keep good records of your deductible expenses throughout the year so you can pay as little income tax as possible or get a bigger tax refund. Tip number two, max out a workplace retirement account. If you have a retirement plan at work, like a 401k, 403b, 457, or government thrift savings plan, take a look at how much you've contributed for the year. For 2011, you can contribute up to $16,500 or 22,000 if you're age 50 or older. By the way, those amounts have been increased by $500 for 2012. Every dollar that you contribute to a retirement plan on a pre-tax basis is income that you don't pay tax on until you take a future withdrawal. Additionally, many employers match a percentage of what you contribute. That's a smart way to build an S-tag and cut your taxes, and you don't even need to itemize deductions on your tax return for this benefit. Log on to your online retirement account or ask your benefits administrator at work to boost your final contribution for the year so you can max out the account or get as close as possible, especially if you're expecting a year end bonus. While you're making adjustments, go ahead and increase your contribution by at least 1% for next year. Tip number three, start a retirement plan for your small business. If you're self-employed, you can open up a retirement plan for your business, like a SEP IRA, simple IRA, or a simple 401k. I've done previous podcast on these topics, like show number 217, how to use a SEP IRA retirement plan, and show number 234 what is a simple IRA or 401k retirement plan. So be sure to go back and listen to those for more details. Having a retirement plan for your business is a powerful way to sock away more money for the future, get additional tax breaks, and offer your employees an attractive benefit. H5N1 bird flu is spreading in some animals. If you work with poultry, dairy cows, wild animals, or with raw unpasteurized milk, wear protective gear, and take precautions. cdc.gov/birdflu, a message from CDC. I love learning and anything that makes learning easier. If you're a parent and your child needs some homework help, then IXL is a right for your family. IXL is an online learning program for kids covering math, language arts, science, and social studies. IXL has interactive practice problems for topics from pre-k to 12th grade, and everything is organized by grade and subject. As kids practice, they get positive feedback, awards, and explanations for wrong answers. IXL figures out what your kids need more help with, and recommends more topics to practice. Their videos, lessons, sample problems, and learning games, too. One subscription to IXL gets you all subjects and all grade levels. Membership started just $9.95 a month. It's no wonder IXL is used in 95 of the top 100 school districts. I think the positive feedback that IXL gives is really crucial when it comes to learning. So make an impact on your child's learning. Get IXL now, and money girl listeners can get an exclusive 20% off IXL membership when they sign up today at ixl.com/moneygirl. Visit ixl.com/moneygirl to get the most effective learning program out there at the best price. Earning your degree online doesn't mean you have to go about it alone. At Capella University, we're here to support you when you're ready. From enrollment counselors who get to know you and your goals, to academic coaches who can help you form a plan to stay on track, we care about your success, and are dedicated to helping you pursue your goals. Going back to school is a big step, but having support at every step of your academic journey can make a big difference. Imagine your future differently at capella.edu. Tip number four, prepay deductible expenses. A smart strategy to save money on taxes is to bunch up as many deductions as you can in a single tax year. Remember that you have to itemize to be eligible to claim the lion's share of available deductions. Prepaying increases the likelihood that you'll have enough to itemize in the current year. On the other hand, if you won't have enough to itemize, it's smart to delay paying as many as possible until next year. Here are some deductible expenses you can prepay. Interest on your home mortgage. Consider paying your January mortgage payment by December 31st, so you have an extra chunk of interest to deduct for this year. Real estate taxes on your home. You generally receive a property tax bill in November, but it isn't due until the following year. Paying the tax before the end of the year gives you another deduction and maybe an early pay discount. Interest on student loans. You can generally deduct up to $2,500 of interest paid on a student loan. This benefit applies even if you don't itemize, however it is subject to annual limits on your income. Prepaying your January student loan payment by December 31st gives you a little more tax savings for the current year. I'll put a link to schedule A in the transcript for this show, which is episode number 247 in the Money Girl section at quickanddirtytips.com. Reviewing schedule A is the best way to see all the deductible expenses you might be able to prepay this year, such as medical costs, legal fees, and unreimbursed business expenses just to name a few. Tip number five, spend money in your flexible savings arrangement or FSA. A flexible savings arrangement is a tax-advantaged account that employees can use to pay for certain medical expenses on a pre-tax basis. If you have an FSA at work, it's a fantastic way to save on healthcare costs. Consider this, if your average tax rate is 25%, you instantly save 25% on your medical expenses when you pay for them using funds in your FSA because that money is never taxed. However, there is a deadline to spend the money in an FSA each year or you lose it. The cutoff varies by company, but it's typically December 31st. So put the deadline on your calendar each year to make sure you drain the fund by purchasing qualified products and services, like dental care, eyeglasses, and contact lenses, and don't lose one penny in the account. Taking the time to do a little year in tax planning can really pay off. It's always a good idea to meet with a tax professional who can review your situation and make recommendations, so you never pay more tax than you have to. When you visit smartmoves2growrich.com, you can find out how to connect with me on social media, like Facebook and Twitter, get email updates, and subscribe to the show. If you're not already getting the podcast in iTunes, subscribing is free and simply means you'll automatically get each new episode as soon as it's published on the web. To find out more smart tax moves and lots of ways to save money, grab a copy of Money Girl Smart Moves to Grow Rich from your favorite bookstore in print or as an e-book, you can even download two chapters for free at smartmoves2growrich.com. I'm glad you're listening to Ching. That's all for now. Courtesy of Money Girl. Your guide to our richer life. H5N1 bird flu is spreading in some animals. If you work with poultry, dairy cows, wild animals, or with raw, unpasteurized milk, wear protective gear and take precautions. cdc.gov/birdflu. A message from CDC. Earning your degree online doesn't mean you have to go about it alone. At Capelli University, we're here to support you when you're ready. From enrollment counselors who get to know you and your goals, to academic coaches who can help you form a plan to stay on track, we care about your success and are dedicated to helping you pursue your goals. Going back to school is a big step, but having support at every step of your academic journey can make a big difference. Imagine your future differently at Capella.edu. [BLANK_AUDIO]