Proper tax planning can save you thousands, even tens or hundreds of thousands depending on your income. To achieve the greatest savings, you always want to start tax planning at the beginning of the year. December is the best time to start, but for planning out the next tax year, not the one that's ending. Yet all too often clients call with just days left in the year wanting to know how to reduce their tax bill. For those last-minute planners, we have a few last-minute tax tricks that can help.
Simple Last Minute Tricks
- IRA Contributions
- Purchasing Rental Property
- Section 179 Bonus Depreciation
The #1 Used of Last Minute Tax Tricks: IRA Contributions
Making a contribution, when eligible, to a qualified retirement account can reduce your taxable income by the amount of the contribution. Additionally, the Savers Credit can increase your refund by as much as fifty percent of your contribution. If you qualify, a $6,000 IRA contribution could save you as much as $4,020 in taxes.
These contributions are also one of the easiest last-minute tax tricks to do, and it doesn't have to be done before the end of the year. An IRA contribution can be made up until April 15th of the following year. So, a 2022 contribution can be made as late as April 15th, 2023. This allows us to prepare your tax return and do the math before filing to know exactly how much of a contribution to recommend you should make and how much it will save you.
Purchase Rental Property
While a rental property purchase isn't usually thought of as a last-minute tax trick because it can't be made on the last day of the year, it definitely can be done as late as the last calendar quarter. And whether as a last-minute decision or a part of a grander tax plan, rental property is often key to avoiding taxes and increasing your passive revenue.
Just any rental won't do, however. Take the time to talk with a tax advisor who specializes in real estate and works with a real estate brokerage to find properties that serve as great real estate investments and produce the kind of tax breaks you're looking for.
Section 179 is a bonus depreciation program for self-employed individuals and businesses that allows for qualified last-minute purchases, even financed purchases, to be deducted in full in the year they were purchased. This can mean that new truck your business needs, even though it is financed and you're buying it in December and haven't made a payment yet, can possibly be deducted in full in that year of purchase. Section 179 is commonly used by business owners to increase cashflow now with the 100% upfront depreciation.
Last Minute Tax Tricks Aren't as Good as Longterm Planning, but They Definitely Do Help
Longterm Tax Planning is Best, Especially at Higher Incomes
Longterm planning becomes even more important as you enter higher tax brackets. In lower tax brackets, these 'last-minute tax tricks' are sometimes your best and only options to mitigate taxes, but at higher incomes there is so much more to consider.
Your type of income also makes a big difference in what tax tricks are available to you. W2 earners are much more limited, while 1099 recipients and other self-employed individuals or businesses have a greater selection of strategies.
Take the time today to schedule your free consultation with us to see what type of tax planning may satisfy your needs.