YOUNGSTOWN, Ohio (WKBN) – Even though the deadline for filing taxes is months away, local financial experts suggest to starting thinking about taxes before the end of the year.
In order to take advantage of a few tax breaks, like retirement savings and charitable giving, you need to act now.
Local financial professional Ryan Nisbett, of Cottonwood Associates, has five smart money moves to make before the end of 2016:
- Donate to charities
- Max out retirement contributions
- Review FSA account
- Take advantage of home tax breaks
- Pay college costs early
Dec. 31 is the deadline to make charitable donations that will count toward your 2016 contributions for tax purposes.
“I always tell my clients that every little bit counts. So don’t disregard cash, clothes or other items that you donated this year,” Nisbett said.
If anyone has volunteered their time throughout the year, there is the possibility of deducting any out-of-pocket expenses directly linked to volunteering.
“It’s important to get a receipt and value your donations of household items correctly. The IRS has helpful tips on how to deduct your charitable contributions and check a charity’s status,” he said.
By increasing the amount you put into a tax-deferred account, like a 401k or an IRA, Nisbett says you can decrease the income you have to pay taxes on. Keep in mind there are contribution limits for both.
According to the IRS, if you don’t earn a lot of money, your contribution to an IRA could also be used to claim the retirement savings contributions credit.
“While it’s true you can wait until the April 18 tax-filing deadline to contribute for the previous tax year, the sooner you put money into an IRA, the longer the earnings will grow tax-deferred,” Nisbett said.
Your flexible spending account (FSA) also requires year-end attention so you don’t waste it.
You can contribute up to $2,550 to an FSA via paycheck withdrawals. As with a 401k, money goes into an FSA before your taxes are calculated, saving you tax dollars.
“Be sure to check with your employer. If you must use your FSA money by Dec. 31, make sure you do,” he said.
Some companies allow a grace period into the next year to use any untouched FSA funds. Check with your employer to see if your company does.
Taking advantage of home tax breaks is also something to do before the year ends.
“Home ownership provides a variety of tax breaks, some of which you can use to reduce your tax bill. You can also make your January mortgage payment by Dec. 31 and deduct the mortgage interest on your coming tax return. The same is true for early property tax payments,” Nisbett said.
For those enrolled in college, the spring semester’s bill isn’t due until January, but Nisbett says it might be worthwhile to pay it before the year ends.
According to the IRS, you may qualify for a maximum annual credit of $2,500 per eligible student.
Tuition, fees and course materials for four years of undergraduate studies are eligible expenses under the American Opportunity Tax Credit. This includes expenses made during the current tax year, as well as expenses paid toward classes that begin in the first three months of the next year.
The IRS says in order to claim that credit or part of it, your income must be less than $90,000 (less than $180,000 for joint filing if married.)
So, taking some of these steps can help lower your tax bill, which can translate to a bigger refund for some.
“Because tax laws change every year, it’s always good to start working with a tax professional now to make sure you’re taking all the deductions and looking for the credits that are available to you,” Nisbett said.