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7 Easy Ways to Augment Your Tax Breaks Before

The tax season is here and your schedule is already hectic! Squeeze in some time to claim your tax break before December 31. Whether you’ve had a great financial year or struggled your way to recover from a huge financial loss, you are in for some good savings if you act before the year ends. Here are 8 ways to lower your tax bill and save a bundle for the coming year!

1. Defer Your Income Until The Next Year

Why pay taxes today when you can postpone it till the year-end. Your income is taxed in the year you receive it, but you can delay the payment if your employer follows a standard practice of releasing your bonus in the following year. If you are a freelancer, you have even more flexibility. However, deferring your gains until 2016 only makes sense if you know that you would remain in the same tax bracket in the coming year. If you are likely to make additional income in 2016 due to a promotion or business profit, you would not want to invite a bigger tax bill by delaying the payment any further than December 31.

2. Supercharge Your Savings With Last-minute Deductions

You can considerably lower your tax bill by increasing your deductions before December 31. Charity is one way to do that. You can donate property, investment gains, stocks, or bonds to receive tax benefits, provided you have a receipt to back up your generous gestures. You can also accelerate other expenses like a hospital bill, property tax, or the state income tax. Itemizing for 2015 instead of claiming a tax deduction can be highly beneficial for you, if your expenses don’t exceed $6300. If you are on the borderline, bunching would make a great option. Timing your expenses appropriately to cram your deductible expenditure will help you surpass the standard tax deduction and claim a massive write-off.

3. Be Cautious When It Comes To Alternative Minimum Tax

The AMT was originally designed to prevent illegitimate use of tax deductions, but it eventually started affecting the middle class. If you already fall in the AMT bracket, accelerating deductions can cost you a considerable amount of money as it is calculated independently from the regular tax bill. The expenses deductible under regular rules are not exempted under AMT, for example state income tax and property tax. So if you come under the AMT bracket or if it is likely to be applicable in your situation, you can delay the payment of the installments that are due in January 2016.

4. Use Loss Harvesting To Offset Your Taxable Gains

Stocks and mutual funds are taxable investments which can be sold to offset the gains made during 2015. If your financial loss surpasses your taxable gain, you can utilize up to $3000 in excess loss.

5. Make Maximum Contributions To Fund Your Retirement

A tax-deferred retirement plan is the best way to invest your money and grow it to a considerable amount that is free from taxes till withdrawal. A company sponsored 401(k) allows you to make a maximum contribution of $18,000 or $24,000 depending if you are under 50 or 50 and over.

You can also make contributions towards an IRA for a secure financial future. The sooner you invest, the faster it becomes tax-deferred. It reduces your taxable income and makes your contributions tax-free until withdrawal. The maximum contribution you make towards your IRA is $5,500 or $6,500 again depending on your age. If you are self-employed, you can choose to invest in a Keogh plan.

Keep away from the “Kiddie Tax”

The kiddie tax was created to prevent the transfer of tax bill from the parent’s high bracket to a child’s low bracket. For 2015, the taxable investment rate is applicable at $2,100 and is valid till the child turns 19. If the child is studying full-time and is unable to provide for his/her support, the tax application gets extended up to the age of 24. If parents plan to sell the child stock to provide for college expenses and the gain turns out to be more than $2100, they are likely to attract a 15% tax on the total gain.

6. Watch Your IRA Distributions

RMD’s (Required Minimum Distributions) force you to take regular distributions from a traditional IRA after reaching 70½. If you fail to make timely distributions, it may trigger a huge penalty which can sum up to 50% excise tax on the amount that you failed to withdraw. Annual IRA distributions are to be made by December 31 if you wish to avoid penalty. You can consult your IRA custodian to know the right amount. If you wish to stay away from the hassle of quarterly payments, you can opt for voluntary withholding.

7. Keep A Constant Tab On Your Flex Plans

Flex plans are fringe benefits offered by the employer when employees contribute a part of their pay towards medical expenses and child care. This contribution is not subjected to taxes, but if you don’t spend it by December 31, you lose the fringe benefits. However, a last minute trip to your dentist or optometrist can put the money to good use. Some employers also permit a grace period which allows you to set the money aside until March 2016.