As 2013 comes to a close, you can lower your tax bill by adjusting your income with deductions, tax credits and other strategies. Here are five tax-saving moves to make before the end of the year:
One of the most common ways to shave off your tax bill is to take deductions. Currently the standard deduction is $6,100 for singles and $12,200 for couples so if you’re close to exceeding this amount, you can make a last minute contribution to your favorite charity to get a larger write-off.
For more deductions, donate an old computer, cell phone or car that you no longer use. Donating appreciated assets such as property or stock can also be a good strategy because it not only helps you avoid a capital gains tax, but also allows you to write it off at the market value, which is advantageous if it appreciated in value.
Additional deductions can be taken for health insurance premiums, student loans, mortgage interest, business travel and moving expenses. You can also consider making your home energy-efficient by installing extra insulation or energy-saving windows, as federal, state and local deductions or credits are available for these improvements.
If you meet particular income requirements, you can reduce your taxable income by taking deductions for contributions you make to a traditional IRA. The current contribution limit is $5,500 for those under 50 years old and $6,500 for 50 year-olds and older. You can still catch up to this limit until April 15th of next year.
You can also maximize your contributions to a 529 account, which will allow you to take credits or deductions from your state income tax depending which state sponsors your account.
In addition to taking a deduction, singles who earn $29,500 or less are also eligible to claim a retirement saver’s tax credit up to a $1,000 for contributions to their 401(k) or IRA accounts. Couples who earn $59,000 or less are also eligible to receive up to $2,000 for this tax credit.
Another strategy to lower your tax bill is to push any additional income to next year. For example, ask your employer to defer your year-end bonus. If you still need to get paid for any freelance or consulting work, wait to get paid until next year.
You can also hold off on selling stocks to defer paying taxable gains, or if you’re close to selling your home, move the closing date for next year if the buyer agrees to it. In short, try to defer any type of income or gains if you know your tax rate will be lower or stay the same the following year.
Take a Loss On Your Investments
This year capital gains & dividend tax rates increased from 15% to 20% for singles earning over $400,000 and couples earning $450,000, while the rate remains unchanged at 15% for individuals making $36,250 to $400,000.
Investors can sell losing stocks and other investments to offset taxable gains. If losses exceed your gains, you can use that loss to offset $3,000 of your ordinary income as well as any of next year’s gains. Losses can be carried year after year.
Use Up Your Flexible Spending Account
Some FSAs have a grace period and will allow you to use money in your account until next year. However if your FSA requires you to use your funds by Dec. 31, make sure you’ve used all your money in your FSA or you’ll lose it. You can use it to pay for co-pays for a last minute teeth cleaning, over-the-counter drugs or a new pair of glasses.
In summary, there are ways to lower your tax bill by adjusting your losses and income. Taxpayers should take full advantage of tax credits and deductions that are available to them before the end of the year so they owe less in taxes by the April 15th deadline.
Hannah Kim is a financial writer at NerdWallet, a site dedicated to helping consumers learn how to manage their money, whether it’s to help them find the best credit cards for their needs or find the best car insurance.