THE BLOG
09/23/2014 04:11 pm ET Updated Nov 23, 2014

8 End-of-Year Tax Measures That Could Save You Big

By Paula Pant, WiserAdvisor.com

April 15th isn't the only deadline you need to keep in mind when it comes to staying on top of your taxes. Truly savvy planners also watch for December 31st, which is the cutoff to make some clever moves to maximize your savings come tax-time.

There's still time left to net yourself some savings on this year's tax bill. Squeeze in as many of these as you can before the calendar turns to 2015:

1. Defer Your Income

Any additional income has the potential to push you into the next tax bracket, so whenever you can, try to defer whatever income that you can until the New Year.

This may not be possible when it comes to your regular salary, but you can certainly ask your employer to hold off on presenting you with your year-end or holiday bonus. If you're self-employed, wait until January to send out any invoices for work done in December. You can also wait to sell any assets that might result in a capital gain.

2. Max Out Your Retirement Contributions

Whether it's an IRA, 401K or other employer-sponsored plan, make the maximum contributions you can to your retirement accounts. This will not only reduce your overall reportable income for the year; it will also give you more time to let your investments grow tax-deferred.

Know your plan's limits, as well as your employer's limits for matching contributions if they offer them, and contribute as much as you can up to your allowed max. For 401Ks, for instance, you may contribute up to $17,500 for the year and up to $23,000 if you're 50 or over. For IRAs, you can contribute up to $5,5000 for the year and up to $6,500 if you're 50 or over. The same limits apply regardless of whether your 401k or IRA is structured as a Roth or Traditional account.

3. Capitalize on Tax Losses

Your capital losses can be used to offset your capital gains. This is known as "loss harvesting," and it's a valuable strategy to reduce your overall tax payment. If your qualified losses outnumber your gains, you can reduce your taxable income by up to $3,000. Anything above that $3,000 can be carried into future tax years.

4. Donate to Charity

What better time than the end of the year, when most of us are in a holiday spirit already, to donate to your favorite charity, netting you both a nice tax deduction and that gratified feeling of having made a difference in the world.

Don't just think of donations in terms of money. Clothes and household items, as well as major property (like an automobile), and stock and mutual funds you've held for at least a year, all qualify for a tax deduction. So whether you're holding onto that old car you never drive or that fund that doesn't fit your portfolio anymore, consider turning them into donations.

5. Make Home Improvements

Make the most of homeownership tax breaks by paying your property taxes early and making your January mortgage payment by December 31st so you can deduct the mortgage interest.

If you're thinking of making any energy-efficient upgrades to your home, such as installing new windows or adding insulation, see if they qualify you for the Residential Energy Efficiency Tax Credit and make those before year's end, too. Qualification is based on a large number of factors such as the age and condition of each home component, as well as your own status as an owner-occupant. Read the guidelines carefully to make sure your upgrade qualifies.

6. Review Your IRA Distributions

If you turn 70-and-a-half or older by December 30 and you don't take regular minimum IRA distributions, you can face a 50 percent excise tax on the amount you should have withdrawn. The amount of your required distribution is based on your age, life expectancy and account balance. To find out how much you should be withdrawing, refer to the IRS worksheets or talk to your CPA.

You can also set up voluntary tax withholding on your withdrawals to avoid having to make quarterly estimated tax payments. If you find yourself owing the government a significant amount come tax time, or getting a significant refund, it means your withholding amount needs to be adjusted.

7. Check Your Flexible Spending Accounts

Flexible spending account contributions, like 401K contributions, are made pre-tax, which can save you come tax-time... if you don't let that money go to waste. Some employers will give you a grace period in which to use up any FSA money you haven't spent by the end of the year, but some won't.

Make sure you know your employer's policies, and if you have until December 31st to use your FSA funds, find a way to do so. Remember, FSA money isn't just for co-pays and prescriptions; you can also stock up at the local drugstore or buy that new pair of glasses you've been needing to use your money before you lose it.

8. Make Early Tuition Payments

Spring semester tuition bills are usually due around January. But if you pay now, it may boost your qualification for the American Opportunity Tax Credit, which can net you up to $2,500 per student. By paying now, you move the burden to this tax year, which allows qualified recipients to claim the credit this year instead of next year.

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