One of my goals for 2018 has been to reduce the amount I pay in taxes, basically protecting as much of my money as possible.
I’m not trying to escape my tax responsibilities or anything like that… I like roads and libraries and schools… but taxes eat up a significant amount of income. I’d just rather keep as much of my money as I can.
I figured that if year-end tax saving tips were something I was interested in that some of my readers would be too.
You don’t have to be a high earner to take advantage of these tax saving tips either. There are a lot of ways to keep as much of your money as possible no matter what you’re income is, and you can put it towards retirement, debt, a new pony, a taco truck, whatever.
Oh yeah, we’re talking legal ways to reduce your tax bill. Putting that out there in case you’ve come to the wrong site.
But guys, time is almost up to take advantage of these tax saving tips. The countdown is on for the start of 2019. But, if you can’t do these in the last few days of 2018, then there is always next year.
The best tax saving tips for reducing your 2018 tax bill:
Make a contribution to your retirement account
Throwing some money towards your retirement is always a good idea. And, it’s going to be one of the best tax saving tips you can use because it protects the money you have now and makes it work harder for you in the future.
Individuals can put up to $5,500 in an IRA in 2018. If you haven’t reached that limit yet, this is one of the tax saving tips you might want to consider.
Beyond the potential tax deduction, here’s why contributing to an IRA is a smart money move: If you take the historically conservative return rate of 7%, putting $5,500 in an IRA every year for the next 30 years will turn that $165,000 total contribution into nearly $520,000. That’s a decent nest egg, and it will probably have a huge impact on your ability to retire.
As always, the sooner you start to contribute to your retirement fund the better.
The only caveat here is that your ability to take the full deduction will depend on where your adjusted gross income falls, which will be important to be aware of if you are a high-income earner.
Here’s what the IRS has to say about IRA contributions and your income.
M$M tip: If you want to know how prepared you are for retirement, Personal Capital has a free retirement calculator to help you stay on track.
Tax saving tips if you’re self-employed or working from home
Knowing that I push the self-employed life, I have to include some tax saving tips specifically for self-employed people.
If you work from home in a dedicated space (your dining room table doesn’t really count here), you can claim a home office deduction. I repeat it has to be a dedicated space to run your business.
There are two options for claiming a home office deduction:
- Simplified method- You can claim $5 per square foot of your office, up to 300 square feet.
- Regular method- This is based on how much square footage your home office makes up in comparison with your home’s total square footage. Say it’s 10% of your home, then you can deduct 10% of your home’s expenses for the year (mortgage, insurance, utilities, etc.).
The IRS watches this one carefully, so be honest about it and keep records.
Another tip here is to go ahead and buy that new laptop if you need one, or whatever other large business expense that you were thinking about pushing off until next year. If you’re looking for something at the end of the year, you also might find a decent deal with year-end sales.
Start giving your money away
What did he just say?
Calm down. I’m talking charitable donations, so this is one of the tax saving tips that will make you feel good about reducing your tax bill.
Making cash donations to qualifying organizations is a great way to earn a deduction, but you’ll need to keep those receipts.
You can also deduct the fair market value of any goods you donate to charitable organizations. So, if you’re cleaning out your closets to make room for that Christmas swag, donate the things you are getting rid of.
But, come on, those shoes that you’ve been wearing nearly every day for the past five years aren’t worth what you paid for them anymore. Be honest about the current market value of your donations and keep the donation receipts you’re given.
Consider deferring your income
This may seem counterintuitive. Like, why hold off on getting your hands on your money if it’s already yours? We’re also talking about deferring income right after the holidays, where spending often becomes a free for all, so you might need that money now.
Still, if you’re interested in looking at this as one of the tax saving tips, there are a few ways you can proceed.
If you work for a company who hands out year-end bonuses, you could ask to have that bonus deferred until the start of next year. Some companies will do this, but some might say no. It’s always worth a try.
Or, if you’re self-employed, you can delay some of your billings.
Keep in mind, though, that you’re going to have to pay taxes on that money eventually. Plus, if you think your income is going to push you into a higher tax bracket next year, then deferring when you’re in a lower bracket doesn’t make much sense. If you are trying to save money, it makes better financial sense to pay taxes on that money when you’re in a lower bracket.
Because deferring your income or bonus to take a tax break may cause some financial strain or more in taxes in the long run, weigh that all up before deciding to defer any income.
Use what’s left in your flexible spending accounts
Flexible spending accounts like FSAs and HSAs are accounts set up by your employer to let you make contributions that will help cover your healthcare costs. They’re a nice way to make sure you’re able to cover any type of medical expense.
The thing is, flexible spending accounts have a “use it or lose it” policy, so if there is money left in your account, then I’d definitely say use it up before the year is over.
This may not seem like one of the most obvious tax saving tips, but it’s making sure that you don’t lose any money that you’ve contributed throughout the year.
You can use what’s left in your flexible spending account for getting some prescriptions filled, getting that new pair of glasses you need, etc.
You can also ask your employer if they have a grace period allowed by the IRS, which may extend into March of 2019.
Harvest any capital loses
If you have any bum investments sitting around, then this is one of the tax saving tips that might help you offset any gains you made in 2018.
Also, if you are planning to sell some stocks to make a profit at the end of the year, which you’d have to pay taxes on, then you can sell any bum stocks at a loss to offset the gains you are making from the profitable ones. Harvesting your capital losses might potentially wipe out that tax bill for your gains.
Also, if your net investment losses exceed your net gains, you can use up to $3,000 of those losses to offset your regular income. And, if your losses exceed $3,000, you can carry that forward into 2019.
Make an extra mortgage payment
Many of these tax saving tips involve spending a little to pay less money in the long run. It might sound counterintuitive, but it can work. Making an extra mortgage payment definitely falls into this category.
The reason making an extra mortgage payment can help reduce your tax bill is because of the mortgage interest deduction, which allows homeowners to offset some of your taxable income with the amount you paid in interest on your mortgage.
Because of the mortgage interest deduction, making one extra payment in the last few days of 2018 is one of the tax saving tips you can use as a homeowner.
Bonus for this tip is that you’ll have shortened your loan by just a little bit too.
Think about any of your major medical expenses
If you have qualified medical expenses that exceed 7.5% of your adjusted gross income, you can deduct those expenses in your 2018 taxes.
If you are near that threshold, you may want to see the doctor before the year is over, pick-up some prescriptions, even seeing the dentist or eye doctor will count.
There will probably be some number crunching to see how close to the threshold you are and whether or not it will make sense. If you are close enough, though, it could be one of the tax saving tips you use to reduce your tax bill.
But remember, if you’re going to be reimbursed for any of these costs, you can’t claim them as a deduction.
Speaking of health care expenses, read Is a Health Care Sharing Ministry Right for You? for alternatives to traditional health insurance.