The new fiscal year has just begun but it’s never too late to start planning for how you can end the tax year strong. By following the tax-saving strategies below, you can leverage your personal and business finances this year.
1. Maximize your retirement plan contributions
Employees who participate in 401(k), 403(b), the federal government’s Thrift Savings Plans and most 457 plans had an unchanged contribution limit of $18,000 in 2017. Self-employed individuals who have a simplified employee pension plan could contribute 25% of total compensation to a maximum of $53,000.
Keep in mind that these contribution limits can and do change, so be sure to check in with the IRS, an accountant or a tax lawyer annually to make the most out of your tax refund.
2. Maximize deductions by grouping them
Grouping tax deductions for items like mortgage interest payments in a single year means that you can maximize their value. Other examples of potential deductions (as long as they meet IRS requirements) include:
- Elective surgeries
- Out-of-pocket medical expenses
- Dental expenses
- Deductible taxes
- Charitable contributions
- Non-reimbursement of business expenses (use of home, car, travel expenses, and entertainment expenses)
- Educator expenses
3. Offset investment gains by optimizing tax loss potential
Another way to finish the year strong is to sell investments in order to claim losses to reduce the amount of taxes you owe. These strategies can improve your after-tax return of an investment portfolio.
These same strategies can also result in investors losing out on substantial investment returns, however. This is because once the pressure of selling these investments ends, they become oversold and have an opportunity to “bounce back”.
One way to make the most out of selling investments to claim losses is to avoid doing so in the three months before tax time. If you feel that you must take losses late in the year, try to sell as early as possible so that you can repurchase those shares before the end of the year.
4. Make note of life-changing events
Do not forget to properly inform the IRS of any life-changing events as this can have a significant impact on the taxes you pay. Some of the most common life-changing events include:
- Birth of a child
- Death of a spouse
5. Use gifts as a tax reduction strategy
Anyone is allowed to make a tax-free gift of up to $14,000 annually to as many recipients as he or she chooses. This method is particularly effective when estate planning if you are distributing property while trying to reduce exposure to any inheritance taxes.
6. Pay off your student loans
The IRS reports that student loans are one of the leading reasons why a tax payer may have his or her tax refund check offset each year with approximately 14% of borrowers defaulting on their loans after they are scheduled to make payments.
If possible, pay off your student loans. If both you and a spouse have student loans, you may fill out the form for injured spouse allocation (Form 8379) and ask to have the portion of only one spouse’s refund taken as opposed to your entire combined refund.
7. Pay owed child support
The Office of Child Support Enforcement has been offsetting past-due child support payments for 35 years and has taken $35 billion in past due support as of March 2013. If, however, you are not legally responsible for child support (and depending on the state in which you reside), you may be able to collect your portion of the tax return by filling out a Form 8379.
8. Use bad debts to your advantage
If your business has any uncollectible debts, you may be able to use these bad debts as a tax deduction. It is also possible to use non-business bad debts as a tax deduction, though in order to do so you need to prove:
- That the debt is authentic
- That you have a basis in the debt
- That the debt became worthless in the year you claim this deduction (i.e. the entire amount cannot be collected)
Owe the IRS? Get help from Scammahorn Law Firm, PC
If you have a debt from a prior tax year or were audited by the IRS, the IRS will likely collect the money you owe before they issue a refund and they may even impose costly penalties.
The Scammahorn Law Firm, PC handles IRS-related issues so that you don’t have to. From audits to minimizing or eliminating any money the IRS claims you owe, the tax attorneys at the Scammahorn Law Firm know what it takes to effectively challenge the IRS on its findings to maximize your financial outcome.
We welcome you to speak to one of our tax attorneys today and call (903) 595-1000.