As the deadline for filing your taxes approaches, you may find yourself in a cold sweat as you try to identify ways to reduce your overall tax obligations. Luckily, you can actively offset your income and bring your owed totals into an ideal range by applying the right deductions and ensuring you qualify for the appropriate credits. Read on to learn more about three smart last-minute tips you can use to save money on your taxes.
Sock Away Money in Your Retirement Fund
If you need to decrease your taxable income by a sizable amount for the prior year, you can contribute a portion of your funds to a traditional retirement account. For the 2016 tax season, you have until April 17, 2017, to open a retirement account and deposit your funds. You can only claim contributions up to the maximum of $5,500 for individuals under 50 years of age, and $6,500 for those over 50, for the year. After that point, you can continue making contributions up to the maximum once again to claim the funds on your 2017 taxes.
Apply Capital Losses for Your Unrealized Investments
If you’re claiming capital gains on your taxes, you can use your capital losses to offset your income and reduce your overall obligations. By taking this route, you will likely benefit from the reduced tax rate on capital gains versus other forms of income. At the maximum, you only need to pay 15 percent taxes on your capital gains, effectively saving you money in the long run. You can only claim up to $3,000 in capital losses a year, though you can potentially claim the excess on your taxes for the next filing year.
Itemize Medical, Dental and Vision Deductions
You can decrease your taxable income by applying your yearly medical, dental and vision expenses as itemized deductions. These expenses must total more than 10 percent of your adjusted gross income to qualify as a valid deduction. In addition, your itemized deductions must exceed your eligible standard deduction to make financial sense. If you don’t meet these requirements, then claiming the expenses on your federal taxes is out, but state claims may still be possible. Tax services like Turbotax can help you do this if you need assistance.
With the above tax tips in mind, you can ensure you reduce your obligations as much as possible to save money on your taxes for the year. With the right approach, more of your money remains in your bank account even while closely abiding by the rules set for the year by the IRS.