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Fourth Quarter Moves to Lower Your Tax Liability

Posted By Miranda Marquit On 10/10/2011 @ 12:16 pm In Taxes | 4 Comments

The last quarter of 2011 in upon us, and now is a great time to reflect on how you can reduce your tax liability [3] for the year. There are still some moves you can make during the last part of the year to reduce the amount of money that you owe in taxes. Get ready for tax season now, plan ahead for your deductions, and you will have a smoother experience.

You can still get some tax credits for energy efficient upgrades to your home, but not everyone I planning to add better windows to a home, or install a solar power system. Instead, you can also do some things now to lower your taxable income for 2011.

Tax Deductions Available for the End of the Year

Really, you can take these tax deductions all year. However, many people don’t think about how certain spending can help you reduce your taxable income – and how much you owe the government. Remember, though, that a tax deduction isn’t the same as a credit; you won’t get a dollar for dollar reduction in your liability (as you would with a credit), but the right deduction can keep you in a lower tax bracket [4], and lower the amount of income you are required to pay taxes on.

Here are a few basic things you can do to lower your taxable income right now:

  • Donate: Donations are tax deductible when you itemize. You can donate [5] to your favorite charity, or to your church, and receive a deduction. You can also donate goods; it doesn’t need to be money. Donated items in good condition can be tax-deductible for their market value. Make sure you get a receipt for your records, though, whether you donate money or goods.
  • Retirement account contributions: Check your retirement account contributions. Are you maxing them out? If you have room to contribute to your 401k or traditional IRA, go for it. Upping your contributions can be a great way to reduce your taxable income. Don’t have a retirement account? Open one. The money you put in will be tax deductible. Remember, though, that Roth contributions are made after-tax, and you won’t get a deduction for those contributions.
  • HSA contributions: If you have a Health Savings Account [6], you can make tax-deductible contributions – as long as you qualify for the account by having a high deductible health plan. If you have this type of set-up, you can make contributions, use the money for qualified health care expenses, and lower your taxable income.
  • Sell losing stocks: While you don’t want to get involved in panic selling, it can be a good idea to sell in some cases. If a stock is no longer fitting your needs, or if you are changing your asset allocation, you might want to sell some losing stocks. You can use some of your losses to offset capital gains, and other income. Just make sure it works with your overall financial plan.
  • Business travel: It’s conference season. (Confession: I’m writing this while on an airplane, heading to FINCON11.) If you are planning some business travel, for a conference, a meeting, or for some other purpose, you can deduct some of your expenses related to business travel. If you are still looking for another deduction, plan a business trip.

With a little planning an foresight, you can spend a little more money and reduce your taxable income, and pay less to the government.

(Photo: davedugdale [7])

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[2] Email: mailto:?subject=http://www.bargaineering.com/articles/fourth-quarter-moves-tax-liability.html

[3] reduce your tax liability: http://www.bargaineering.com/articles/tax-credit-vs-tax-deduction.html

[4] tax bracket: http://www.bargaineering.com/articles/federal-income-irs-tax-brackets.html

[5] donate: http://www.bargaineering.com/articles/donate-car.html

[6] Health Savings Account: http://www.bargaineering.com/articles/finances-55-hsa.html

[7] davedugdale: http://www.flickr.com/photos/davedugdale/5099605109/sizes/s/in/photostream/

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