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Top 8 Year-End Tax Tips

Act before December 31 to increase your tax breaks

Whether you are having a good year, rebounding from recent losses, or still struggling to get off the ground, you may be able to save a bundle on your taxes if you make the right moves before the end of the year.

1. Defer your income

Income is taxed in the year it is received—but why pay tax today if you can pay it tomorrow instead?

It's tough for employees to postpone wage and salary income, but you may be able to defer a year-end bonus into next year—as long as it is standard practice in your company to pay year-end bonuses the following year.

If you are self-employed or do freelance or consulting work, you have more leeway. Delaying billings until late December, for example, can ensure that you won't receive payment until the next year.

Whether you are employed or self-employed, you can also defer income by taking capital gains in 2019 instead of in 2018.

Of course, it only makes sense to defer income if you think you will be in the same or a lower tax bracket next year. You don't want to be hit with a bigger tax bill next year if additional income could push you into a higher tax bracket. If that's likely, you may want to accelerate income into 2018 so you can pay tax on it in a lower bracket sooner, rather than in a higher bracket later.

2. Take some last-minute tax deductions

Just as you may want to defer income into next year, you may want to lower your tax bill by accelerating deductions this year.

For example, contributing to charity is a great way to get a deduction. And you control the timing.

- You can supercharge the tax benefits of your generosity by donating appreciated stock or property rather than cash.
- Better yet, as long as you've owned the asset for more than one year, you get a double tax benefit from the donation: You can deduct the property’s market value on the date of the gift and you avoid paying capital gains tax on the built-up appreciation.

You must have a receipt to back up any contribution, regardless of the amount. (The old rule that you only had to have a receipt to back up contributions of $250 or more is long gone.) Other expenses you can accelerate include:

- an estimated state income tax bill due January 15
- a property tax bill due early next year
- or a doctor’s or hospital bill.

But speeding up deductions could be a blunder if you're subject to the alternative minimum tax, as discussed below.

Don’t miss out on valuable tax deductions if you can itemize rather than claiming the standard deduction. According to the IRS, about 75% of taxpayers take the standard deduction, but could be missing out on valuable tax deductions if they can itemize.

- If your qualifying expenses exceed the standard deduction, which in 2018 is $12,000 if you are single, or $24,000 if you’re married filing jointly, then you likely should maximize your deductions and itemize.
-Don’t worry about figuring out if you can itemize or should take the standard deduction. TurboTax will figure it out for you based on your answers to simple questions about your deductible expenses.

If you're on the itemize-or-not borderline, your year-end strategy should focus on bunching. This is the practice of timing expenses to produce lean and fat years. In one year, you cram in as many deductible expenses as possible, using the tactics outlined above. The goal is to surpass the standard-deduction amount and claim a larger write-off.