Editors' pick: Originally published Dec. 1.
'Tis the season to be jolly and start thinking about ways to save money on your taxes; it should be visions of sugarplums dancing in your head, a joy that is found, in part, by not giving the IRS more money than necessary.
With some easy-to-do steps that you can take now, you can be rest assured that when the time comes to file your taxes, it'll be time to spread holiday cheer and not holiday jeer.
Bill Smith, managing director at professional accounting and services provider CBIZ MHM, cautions you should take these steps now because if you wait, they won't be available to you after the new year.
"If you don't do it now, you've lost it for this year," Smith said over the phone. "You have to do it before December 31 and then you can put a bow on it and be done with it."
Depending on whether you're a homeowner or renter, married or single, there are several ways you can help save on your taxes from laws and methods that have been around for years.
Consult a tax professional to see which of these are best for your situation.
1. Defer or accelerate income.
Smith noted that if you're looking at having a gross or adjusted gross income that significantly fluctuates, you may want to defer or accelerate some of the income, depending on your situation.
"If your adjusted gross income (AGI) is higher next year, you might want to defer it," Smith said. This would include deferring things like a bonus or if you run your own business, billing for consulting work.
"All of those are cash basis things that you can work with on your AGI," Smith said. There may be a drawback to doing this, Smith noted. There is the potential to lose the ability to itemize some deductions, but if you have the ability to defer or accelerate some income, it's worth looking at this to see if it benefits you for 2016.
2. State and local taxes.
State and local taxes can come into your benefit if you know how to use them.
If you have state and local taxes, you can prepay them for 2017 and then deduct them from this year's taxes, Smith noted.
If you're in a state like Florida or Nevada where there is no income tax, Smith highlighted that you can still use sales tax in lieu of income tax. "You have to be diligent on those if you've made large purchases this year," Smith said.
3. Charitable contributions.
If you're an investor, this can be a big help to cut capital gains taxes or potentially have none at all.
"If you have appreciated publicly traded stock, you can claim the entire market value of the stock but you don't have to pay the capital gains on it," Smith said, adding that it has to be a long-term position (held for greater than one year).
However, it can't exceed more than 30% of your adjusted gross income.
4. Considering contribution to charity for your IRA.
If you're older than 70.5, you can take a distribution from your traditional IRA and donate it to charity. In this case, it wouldn't count as income, Smith noted and thus, you don't have it to report it as such.
5. Match capital gains and losses.
While it's nice to get matching sweaters with your family or significant other this time of year for the family photo, matching your capital gains and losses might be just as important.
"If you have capital losses that you've sustained, then you want to see if you have any locked in capital gains," Smith said.
In this case, you can deduct up to $3,000 in excess capital losses if you don't have any long-term capital gains. The reverse is also true, Smith added - if you have capital gains, you can look to see if you can close out positions where you have a loss to help offset the gains.
It's important to be careful with this, though, and pay attention to the wash rule, Smith said. "If you buy the same security within 30 days, you lose your loss if you want to replace it."
6. IRA contributions.
This one is a no-brainer and easy enough for everyone to take advantage of.
You can contribute up to $5,500 for 2016 and 2017 to your IRA (individual retirement account) and put that on your tax forms. If you're over 55, you can add an additional $1,000.
7. 401(k) contribution.
If you're not already doing it, what are you waiting for?
Maxing out 401(k) contributions not only sets you up for a stronger retirement down the line, but it can help with your taxes now. If you're under 50, the maximum contribution per year is $18,000 and $24,000 if you're over 50.