Before you get ready to ring in the New Year, take some time to reflect on how the year treated you financially. Whether it was a prosperous one or if you experienced some setbacks, it never hurts to consider some steps to take to reduce your taxable income. These things have to be done before December 31 in order to be reflected on your 2016 income tax return. Here a few ideas offered by H&R Block and TurboTax:
- Make an extra contribution to your 401K plan. In 2016, the limit for contributions is $18,000 or $24,000 if you are 50 or older. Talk to your employer about scheduling an additional contribution before December 31.
- Share with those in need. Cash donations to your favorite charity or cause are tax deductible. Be sure to save a copy of the cancelled check as proof of the donation. Donations over $250 will require a receipt from the organization that received the funds.
- Defer income until next year. If a year-end bonus is expected, ask your employer to disburse the bonus in January. Be mindful that this will impact your 2017 tax return. If you are self-employed, hold off mailing out invoices to customers until the last week in December. That should ensure a majority of the payments will be made after January 1.
- Have that medical procedure you have been putting off. Unreimbursed medical expenses that exceed 10% of your adjusted gross income can be deducted from your taxes. Some deductible expenses include laser eye surgery, knee replacement or a portion of long-term-care insurance premiums.
It is always best to consult with your accountant or financial professional before making any drastic moves regarding your income tax liability.