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With Christmas just around the corner, everyone is looking forward to receiving presents from friends and loved ones. Unfortunately, most of us forget to accept some great gifts from Uncle Sam.
Believe it or not, our government offers money-saving opportunities to almost everyone. But there’s a catch: You have to take advantage of them before the end of the year. Luckily, you still have time to take steps to cut your taxes for the year and put money in your pocket.
Here’s a list of year-end tips to save money:
Remember, the money has to be in the plan by the end of the year to lower your 2003 taxable income. So ask for extra contributions to start coming out of your paycheck now.
If your company doesn’t have a retirement plan, consider opening an Individual Retirement Account. The money put into the account is tax deductible. Your money then grows tax deferred until you withdraw the funds. The contribution limit is $3,000 ($3,500 for those age 50 or older).
Use up any dollars left in a company flexible-spending account. These accounts provide tax-free money for childcare or medical expenses. But you have to use it by Dec. 31 or the account drops to zero. (Finally, an excuse to spend money!) So if you’ve been thinking about new glasses or sunglasses or other medical expenses, now is the time to buy.
For the charitably inclined, give to your favorite cause. Donations made before Dec. 31 can be deducted for this year, boosting your tax refund and giving you that “fun money” that usually leads to the kind of behavior that makes you feel guilty in the first place. But remember, a promise to pay, such as a pledge to your church or synagogue, does not qualify for a deduction. The payment must be made by Dec. 31.
Make your January house payment in December. Getting that mortgage check to the bank a week or two early allows you to add another month of interest to your 2003 tax deductions.
As long as you’re making an early mortgage payment, you might as well pay real estate taxes due early next year (in January, February or March) before Jan. 1, since that bill is also tax deductible.
Pay your state income taxes. By estimating and paying your 2003 state income taxes this year, you’ll be able to deduct that amount from your income.
Check that portfolio. As the end of the year approaches, investors should consider selling investments that have lost money — assuming you don’t believe that they’re poised for a rebound.
Selling an investment for less than you paid for it enables you to “realize” a loss that can be used to offset profits earned on other investments sold during the year.
If your realized losses exceed your realized profits, up to $3,000 of the excess can be used to reduce your ordinary taxable income, thus cutting your income tax. Any losses above $3,000 can be carried forward to cut taxes on investment profits or ordinary income in future years.
But remember, you shouldn’t sell losers just to save taxes — make the investment decision first. Each investment should be judged on what you think it will do in the future, now what it has done in the past.
Look at optional medical expenses. If you’ve had some big medical bills this year that your insurance company only partially covered or didn’t cover at all, consider having that medical procedure you’ve been thinking about for a few years. That’s because medical expenses are deductible once they exceed 7.5 percent of your adjusted gross income, so it makes sense to bunch medical expenses into one year.
For instance, if you had a lot of medical expenses this year and you know you want to have laser eye surgery to correct your vision, schedule the eye procedure for 2003 if it will push you over 7.5 percent.
I’ll admit that during the holiday season, with the presents and the parties, most of us don’t want to think about taxes. But a couple of smart moves made before Dec. 31 can save you hundreds, if not thousands, of dollars.
Now, that’s something to celebrate.
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Our daily emails are personally curated by our editors and feature a wide range of news, features, reviews and interviews. Don't miss out on any of our award-winning content -- from news to arts, cars to tech, food to fitness, we've got it all!