With the holidays fast approaching, now is a good time to consider making some moves that may reduce your 2020 tax bill. Following these tax saving strategies, which you can implement before December 31, should put you in a better position when you file your taxes before the April 2020 deadline.
Lower Your Taxable Income
Making more money than you did the year before is usually a good thing. But if you think your income for 2018 may put you in a higher tax bracket—whether from regular earnings or a windfall—you will want to find all the deductions you can before the end of the year to avoid increasing your taxable income.
Here are a few simple ways to reduce your taxable income and avoid higher tax brackets:
- Make charitable donations
- Open and contribute to an individual retirement account (IRA)
- Take advantage of the pre-tax savings accounts through your employer
- Review your purchases from the year and determine if any are tax deductible
To deduct additional mortgage interest in 2020 you can also make your January mortgage payment in December. Some tax professionals say you can simply make your January mortgage payment with a check dated December 31 and it will still count toward the current year tax deductions. However, this tactic only works for January’s mortgage payment.
Defer Your Income
Since income is taxed in the year it is received, you may want to delay large lump sums of money, such as a bonus, until after December 31. Some employers may allow for this, if you request it. If you are self-employed or do freelance work, you have more leeway. You can delay your billings until late December to ensure that you won’t receive payment until January.
These are just a few ways to help you prepare for the 2020 tax season. Please consult your tax advisor to determine if any of these strategies will work for your tax situation.