7 Last-Minute Tax Breaks to Take Advantage of Before the End of the Year
It’s not too early to think about tax season, even if April is months away. There are plenty of tax-deductible expenses you can take advantage of last-minute up until the December 31 deadline.
1. DONATE, DONATE, DONATE.
If you donate to a charity with 501(c)(3) nonprofit status, you can take the amount of that gift off your taxes. If you receive some sort of compensation for your donation—like when you donate to a public radio drive and receive a tote bag in return—you can only take the net off your taxes, after subtracting the fair market value of the item. The same fair market value applies for donating used items like clothing. You don’t have to donate cash, either. You can donate stock or property, and in doing so, not only deduct the market value of the donation, but avoid paying capital gains taxes on the appreciation.
To take advantage of these tax deductions, you need to itemize the deductions on the IRS’s form 1040 [PDF], and you should keep all your receipts. Your accountant or tax software—like TurboTax or H&R Block—can help you decide if itemizing is a good idea.
2. SET UP AN IRA.
Technically, you don’t have to do this before 2017 rolls around—you have until April 18 to open and fund an IRA and reap the benefits this fiscal year. But what better way to put your holiday money to a good cause (for you)? If you already have a retirement plan at work—which you should, if it’s available—and make less than $117,000 a year, you can contribute up to $5500 to an IRA per year. (If you’re over 50, you can contribute more.) However, the amount you can take off your taxes varies by how much money you make. If you're single and make more than $61,000 per year, you can only take a partial deduction, while if your salary falls below that line, you can take the full contribution off your taxes.
If you don’t have a retirement plan at work and are single, you can take the full deduction no matter what your yearly income is. Note that these deductions only apply to traditional IRAs, not Roth IRAs, the type of retirement plan funded with after-tax contributions, which are tax-free when you access the funds once you reach the qualifying age.
3. SPEND YOUR FSA MONEY.
If you don’t use the money you contributed to your Flexible Spending Account by the end of the year, you’ll lose it. The money that you put into that account isn’t subject to income or Social Security taxes, so you’re saving money when you load up your FSA account at the beginning of the year by lowering your taxable income. But if you forget to use it all, those savings are not much good. However, certain employers do let you roll over some unused FSA money into the new year. Not going to the doctor in the next few days? Check out the FSA store online. There are probably more eligible purchases than you realize.
4. BUY SUPPLIES FOR YOUR SCHOOL OR YOUR FOSTER PET.
If you’re a teacher or a pet lover, there may be tax deductions you don’t know you can take. They may not seem like similar endeavors, but both usually involve paying for supplies on your own dime, whether it’s colored pencils and safety scissors or dog food and vet bills. For K-12 teachers who pay up to $250 on school supplies out of pocket or people who are fostering (not adopting!) a dog, those costs can come off your tax bill.
5. SIGN UP FOR A CAREER-RELATED CLASS.
Job hunting qualifies for a tax break, as long as you’re looking for gigs in your current field. If you’re paying for career counseling, resume prep, or travel to look for a new job, you can take those costs off your tax bill. The printing cost of making all those resumes counts, too. However, those expenses have to exceed 2 percent of your gross income.
6. SELL OFF SOME BAD STOCKS.
If you happen to hold stocks, bonds, or mutual funds that haven’t done so well this year, you can sell them off and save money on your taxes. Basically, if you’ve made any money off your investments this year, you’re subject to capital gains taxes. If you sell some stocks for a lower price than you initially paid for them, those losses are subtracted from your taxable gains. This is known as tax-loss harvesting.
And if you’re not investing your money, consider doing so as soon as you can. You'll need long-term investments in order to grow your money in the long run. If you don’t know the first thing about investing, there are plenty of startups that will help you out.
7. GO TO THE DOCTOR OR ACUPUNCTURIST
Certain medical expenses are tax-deductible, even if you don’t use your FSA card, if you spend more than 10 percent of your gross income on medical expenses, including insurance premiums, doctor’s visits, medical procedures, and prescriptions. Some qualifying expenses you might not know about include breast pumps, acupuncture, pregnancy tests, and contacts or glasses. If you’ve got an unpaid medical bill sitting around, pay it ASAP so you can add that to your 2016 expenses. If you don’t exceed the minimum necessary for the deduction, even if you’re really close, you don’t get it.