Your brain may be flooded with holiday to-do lists this December.
But there’s another checklist you should run through now that could affect your financial situation next year. Here are a few ways to help reduce your taxable income and put you in a better position for a larger tax refund next year.
UPDATE YOUR CONTRIBUTIONS
Employee-sponsored health insurance plans often are up for enrollment in December, so don’t forget to sign up for or renew plans for next year.
But don’t stop there. This is also the time of year to take a look at your Health Savings Accounts or Flexible Spending Accounts, funds put aside for medical expenses that reduce your taxable income.
If you depleted these accounts in the past year or you anticipate larger expenses next year, Peek recommends increasing your contribution. For HSAs, which roll over, she says you gain the most benefit by maxing out your contribution.
Similar advice goes for retirement accounts and educational savings plans, like 529s and 401(k) plans. Leverage your employer matches to the max — don’t walk away from free money.
BE CHARITABLE — AND KEEP RECEIPTS
This month also is a frequent time for donations to charities. If you are giving cash and not items, Peek says to remember to keep a receipt. Both types of donations are tax deductible.
Also, make sure to get receipts for any memberships to nonprofit organizations, like museums and other venues. These memberships, whether you are buying for yourself or as a gift, are often tax deductible.
PAY FOR EQUIPMENT AND SERVICES EARLY
For self-employed individuals and small businesses, December is a crucial month. Take a look at your budget and project needs for next year and buy what you can by the end of this year.
Will your business need new equipment? Buy it now. Pay your January rent in December. Prepay this year for any services you know you will be buying next year, like office cleaning, repairs or remodeling. Even buying gift cards for employees can all reduce your business’ overall tax burden.
This goes for college students, too. Buying books and other supplies this year can help your or your parent’s tax return next year.
If you have any questions about any of these tips, don’t hesitate to reach out to our office for an appointment.
PHOTO CREDIT: Kohei Kanno — CC
Peekz ConsultiN LLC is a Pittsburgh-based accounting firm, located in the West Side, that caters to individuals, small businesses and nonprofit organizations. We aim to empower clients to help them take control of their finances and achieve their dreams.