Tax season is right around the corner, and getting a jump on tax moves before December 31 can help you keep more of your hard-earned money. Here are six simple tax tips to raise your tax refund:
1. Give to charity. It’s the season of giving, and you can help both someone in need and your own bottom line by donating clothes, household goods, or furniture to qualified charitable organizations. Donations over $250 must be accompanied by a written record, while those over $5,000 require appraisal.
2. Don’t forget deductions for volunteering. Participating in a toy drive or helping at a food bank are great ways to lend a hand during the holidays. Just make sure you keep track of your mileage—$0.14 can be deducted for every mile driven to help. You can also deduct volunteer-related parking, tolls, and other forms of transportation.
3. Increase your 401(K) contributions. Contribute tax-free dollars to your employer-sponsored 401(K) plan up to $17,000 and grow your retirement nest egg. Participants who are 50 years or older can contribute up to $22,500. If you can afford to make additional contributions, your bank account will thank you comes tax time. And, if your employer matches your plan contributions, you gain an opportunity to save even more money.
4. Max out your flexible spending account. Flexible spending accounts allow employees to set aside a portion of earnings tax-free to pay for qualified expenses, most commonly for medical and dependent care. The only catch is that you lose the money if you don’t use it by the end of the plan year. So if you’ve been putting off that dental work, by all means make an appointment and put the money you’ve set aside to good use.
5. Defer compensation. If you worked overtime this year or were lucky enough to get a bonus, consider asking your boss to defer the extra income until January if you don’t need to use it immediately and if you will be in a lower tax bracket in 2013. If you are self-employed, you can also wait to send billing invoices in 2013 to avoid receiving and having to claim income in 2012.
6. Accelerate deductions. Paying your January 2013 medical bills, property taxes, and mortgage payments by December 31 gives you an extra month’s worth of interest to deduct on your 2012 tax return.