There are some things you can do now to reduce your tax burden next year. The following are some of the more common tax-reducing ideas for individuals:
If you have a traditional IRA, you can make tax-deductible contributions up to the maximum amount allowed each year. You and your spouse, if married, can set aside this money for your retirement and reduce your income tax now.
If you don’t have an IRA, you may want to consider opening one. With a traditional IRA, you can deduct your contributions. With a Roth IRA, your contributions are not tax-deductible, but your qualified distributions later on may be tax-free.
If your employer offers a qualified retirement plan that allows you to defer, or contribute part of your salary to the retirement plan rather than paying it to you, this will also reduce your taxes.
If you are self-employed, you can contribute to a qualified retirement plan you set up for your business. Also, don’t overlook the deduction you can take as an adjustment to income for up to 100% of the cost of a health insurance plan on behalf of you, your spouse, and your dependents. The plan must be established under your business and you cannot take a deduction for more than your earned income from the business.
If you have investments, in stocks or example, that are losing value, and you think they will continue to drop, you may want to take the hit and sell them during the year in order to take advantage of the capital losses to offset any capital gains you may have. This may become an important consideration toward the end of the year, when you have a clearer idea of how your investments are doing.
Remember the tax benefits for education. You can deduct interest you pay on a student loan. There is the tuition and fees deduction. Or you may be better off taking the Hope or Lifetime Learning Credit. Certain education expenses related to your work may also be taken as an itemized deduction.
If you are thinking about purchasing a vehicle, keep in mind that you can claim a deduction for a clean-fuel vehicle, or a credit for a qualified electric vehicle.