How many times have you read articles about saving money on your taxes at the last minute? Are you bored out of your mind by repeatedly reading about the same things?
Well, as it happens, the same things tend to work and make sense for saving money all year. Are there any new ideas I can give you? Let’s see, shall we?
The usual ideas for saving money
Here are the same old—yet still valuable—personal tips for saving money:
- Pay your January 2012 mortgage payment in December.
- Pay your January 2012 state estimated tax installment in December.
- Prepay the second half your property tax bill in December.
- Pay outstanding medical bills, especially if your medical expenses are high enough to itemize.
- Clean house—gather up all the clutter and donate your books, small appliances, unused furniture, clothing, and so on to charity.
And here are the same old business tips for saving money:
- Buy next year’s equipment in December—new computers, copiers, etc.
- If your business runs on a cash basis, don’t send out your client invoices until December 31. They won’t have time to pay you in 2011.
Some slightly new ideas for saving money
- Use credit cards to pay your business bills in 2011. You get the deduction now, but you don’t have tap into your accounts to pay until the credit card statements arrive in 2012.
- Find out from your various vendors (personal and business), if you can get a discount by paying early or by using a check or cash. For instance, the Jewish Home for the Aging gives residents a 1 percent discount if they pay in full by the 15th of the month without using a credit card. That’s worth several hundred dollars a year.
- If you can still submit a change to your payroll department, increase your 401(k) or retirement plan contributions as much as you possibly can in December. You can drop them down again in January. Depending on your tax bracket, you might not only reduce your taxable income but you may also qualify for a retirement savers credit, which is worth up to $1,000 (or $2,000 per couple).
- If you know you’re going to owe taxes, consider increasing your withholding in December by filing a Form W-4 with your payroll department. If you apply most of your last couple of paychecks to the IRS and/or to state withholding, you will avoid all the late payment penalties. In January, you can make your withholding zero to make up for the extra withholding December—and balance out your cash flow. This can save you several hundred dollars if you are way behind in estimated tax payments due to business profits or investment income.
Bonus tip for seniors
Folks age 70 ½ or older may have up to $100,000 in distributions from an IRA account donated directly to charity. You won’t get a charitable contribution deduction, but you also won’t pay any taxes. Instead, these distributions satisfy your annual required minimum distribution (RMD). You may have taken advantage of this in January, to use towards your 2010 RMD. You get to do it again, now, for 2011.
If you’re tithing, or making substantial monetary contributions, this may be a good way to make donations. Another advantage is that you won’t be adding your RMD to your income. So, perhaps less of your Social Security income will be taxable this year.
Eva Rosenberg, EA, is the publisher of TaxMama.com®, where your tax questions are answered. She teaches tax professionals how to represent you when you have tax problems. She is the author of several books and e-books, including Small Business Taxes Made Easy. Follow her on Twitter: @TaxMama