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As the year comes to an end, you should take some time to make sure you have made smart moves that could lower your tax burden. Follow these three tips to save money and maximize your financial situation.
Your 401(k) contributions don’t get taxed until you start withdrawing money from your account. By contributing as much as possible, you effectively make your 2017 income look lower than it is. For instance, if you earn $50,000 and contribute $10,000 to your 401(k), you get taxed as if you only made $40,000.
To make the most of this opportunity, you need to contribute as much as possible to your 401(k) account. Currently, the IRS will let you contribute up to $18,000. Keep in mind that this doesn’t include any 401(k) contributions that your employer makes for you. Even if your employer matches some of your 401(k) contributions, you will still benefit from putting $18,000 of your own money into the account.
Each year, you get to count your mortgage interest as a tax deduction. Making at least one additional mortgage payment in 2017 will increase the amount of interest that you get to deduct.
Of course, the amount that you save will depend on your mortgage’s interest rate and how much you still owe your lender. Even a small amount, however, will help lower your tax burden. Plus, you can get ahead of your repayment schedule to save even more money in the future.
Giving money to your favorite charities gives you a deduction that will lower your tax bill. You can also deduct any gifts (such as cars, stocks and clothing) that you give qualified charities.
The more money that you can give charities, the less you will have to give to the government. Realistically, you don’t need to worry about the limit on charitable giving unless you donate more than 20 percent of your adjusted gross income. If you have an adjusted gross income of $50,000, then you can donate up to $10,000 before you need to worry about hitting your cap.
Congress plans to make big changes to the tax code. Take advantages of these deductions in 2017 while you know you still can. Consider using some of the top tax preparation software to help save on costs as well. The situation could change next year.