3 Simple Tips For Lowering Your Taxable Income
Posted by: Brookside Admin
If you want to pay less in taxes, the easy answer is to make less money. But no one wants to lower their salary. Fortunately, you can lower your taxable income by making some shrewd financial moves before the end of the year. Here are a few tips to consider in 2016's final two months. To find out which of these moves will work best for you, contact us at Brown Kinion and Company and speak with one of our experienced CPAs.
Contribute to your retirement plan
You probably already know that money in your employer-sponsered retirement account isn't considered taxable income. You may not have considered that this creates a way for you to keep your money, but decrease your tax liability. In 2016, you can contribute up to $18,000 to a 401(k) or other retirement account, or up to $24,000 if you're over age 50. All of the money contributed under this threshold is exempt from income tax and won't need ot be claimed on your next tax return. So, if you haven't reached the limit yet and you can afford it, deposit more money into your retirment account before the end of the year and pay less in taxes.
Pay your property tax now
If you own property, you likely owe property tax that's due early in 2017. If you're planning to itemize your tax return, you could potentially save by paying that tax bill before the end of 2016. This allows you to deduct your property tax payment from your taxable income this year. Of course, if you think you'll make more in 2017, you may want to save this savings for next year, but if 2016 included more taxable income than usual, this could be a good trick to keep you from a significantly higher tax bill. Be warned, however, that using too many deductions like property tax could trigger the alternative minimum tax. If you're claiming numerous deductions, be sure to calculate your AMT liability to see if paying your property tax really puts you ahead.
Defer income until next year
This final tip effectively lowers your salary for 2016. That doesn't sound attractive, but in reality you'll make the same amount of money. You'll just get paid in January rather than near the end of 2016. There are a few scenarios where this makes sense. For example, if you're due a year-end bonus, you could ask that the bonus isn't issued until January to avoid it being lumped into your taxable income for 2016. If you're a business owner, you could delay sending out bills and invoices so payments don't come in until next year. Similarly, you could delay collecting commissions for a sales job if you're concerned about your next tax bill.
In addition to these three simple tax savings tips, the CPAs at Brown Kinion and Company can help you manage your investments, charitable donations and more to lower your tax liability.
Contact us today for help making these year-end financial moves, and for help preparing your next tax return to ensure you receive the refund you deserve.