The holiday season is the time for giving to friends, family members, loved ones, and others. However, it can also be the ideal time to take advantage of last minute tax deductions that could lower what you owe the IRS next year. Give yourself the gift of lower taxes by learning how to utilize holiday tax deductions to your benefit before the end of the year.
Donate to Charity
Hundreds of charities across the country launch their annual campaigns for donations during the holiday season. Organizations like the Salvation Army, Goodwill, and Catholic Charities ask the public to donate time, money, and personal goods to individuals and families in need.Along with demonstrating your goodwill toward men, you also can claim a tax deduction when you donate to your favorite charities during this time of year. Before you donate, however, you should make sure that the organizations to which you give time, goods, or money have tax exempt status from the IRS. If you give to a charity that is not recognized as tax exempt, you cannot claim the deduction on your taxes.
You will know if an organization fits this criteria if it has a 501 (c) (3) status. This status indicates that it has submitted the proper documentation to the IRS to prove that it does not operate for profit. It also means that you may deduct your donations to it on your tax returns next year.
If you plan on deducting your donations of time, money, or goods, it is crucial that you get a receipt for your contribution. Most charities readily provide receipts for donors. However, if one is not offered to you, you should make a point to ask for a receipt.
Further, you should also locate and retain the receipt for the purchase of any goods that you donate to charity. The IRS may ask that you prove that you purchased the items if you want to use the donation as a tax deduction. If you can prove that you were the person who bought them, you could deduct the current value of them on your taxes.
The IRS may also allow you to deduct up to 14 cents per mile of driving time that you spent delivering goods, money, or your time to charities. You should keep records of your mileage and any gas that you purchased for your personal vehicle while donating to charities in your area.
Give to Employees
If you own a business and have employees, you could deduct the value of bonuses, gifts, and awards that you give to them during this time of year. As with donating to charity, you should make sure that your contributions to your employees meet the criteria for tax deductions. You can find this information on IRS.gov or in the IRS publication 463.The IRS generally considers bonuses and gifts as income for which you as the employer would need to deduct taxes for:
- state
- federal
- local
- unemployment
- FICA
Contribute to Your Retirement
Another legitimate and resourceful way to offset your tax burden next year involves diverting some of your income to retirement savings. When you contribute to a 401k through your job, a Roth IRA, traditional IRA, or another form of retirement savings account, you lower your taxable income and thus lower the amount of money that you might owe the IRS next year.
If you are unsure about what kind of retirement account to divert income to or how much to contribute for this purpose, you can get the most reliable advice by consulting a tax professional. A tax pro can assist you with making contributions to your retirement savings in a way that will lower your tax burden while also helping you grow money that you can use later in life.
Improve Your Home
Finally, the IRS may allow you to deduct money that you spend improving your house to make it more energy efficient. You may be able to deduct up to 30 percent of the expenses that you incur for:- installing new windows
- purchasing solar panels
- putting in a new geothermal system
- buying an energy efficient HVAC system
You should make these home improvements before the end of the year and keep receipts for the purchases if you want to use them as deductions during the upcoming tax season.
The IRS gives taxpayers like you ample opportunity to take advantage of tax deductions during the holiday season. These deductions may also help you make meaningful contributions that benefit not only you and your family but also people in need during this time of year.
