Review: 11 ways to reduce next year’s tax bill
Hopefully you’ve been able to close the books on last year’s taxes by now. But that doesn’t mean you should ignore them for another year. Now’s the time to make sure that you are doing everything you can to minimize your taxes in the future.
This article has some suggestions on how to make sure you pay less to the IRS next year. The suggestions range from the correct and innocuous (contribute to an IRA or make sure to deduct any large medical expenses) to the wildly impractical (buy a house or install solar panels).
Yes, you certainly get tax credits for installing solar panels, and the mortgage interest deduction is certainly very nice, but you need to keep sight of the big picture. You want to take all of the deductions you are entitled to, but you shouldn’t do something just for the write-off.
For instance, the credit for installing solar energy systems allows you to write off up to 30% of the installation costs. If that makes installing solar panels more attractive, that’s great (that’s the whole point of the tax credit), but you shouldn’t do it just for the tax benefits. You’re still on the hook for the other 70%.
A lot of tax planning is pretty simple.
- If you’re spending from your investment portfolio, make sure you’re taking your money out from the right accounts.
- If you make charitable deductions, think about timing your contributions to have the largest benefit, or think about using a donor advised fund.
- Make sure that you your asset location squared away.
- Make sure you’re contributing the right type of retirement accounts, and if you’re likely to be in a lower than normal tax bracket this year, start thinking about doing a Roth conversion.
It should go without saying that taxes are complicated. And everyone’s situation is going to be a little bit different. But you owe it to yourself to make sure you don’t pay any more than you need to.
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