10 Easy End of Year Tax Tips to Increase Your Tax Refund

2017 is almost over, and we hope you’ve been saving your receipts for tax reason. While you organize and prepare all of your files, there are a few ways you can boost your deductions and credits, and therefore your refund. You have plenty of time to take advantage, but plan ahead and make haste! Take in our 10 tips below to increase your tax refund.

10 Tips to Increase Your Tax Refund

Medical

The general idea with the first three of these areas is pre-payment in order to reap the maximum deduction benefits.

Meeting the threshold of qualifying medical expenses in order to take the deduction can be difficult, but take into consideration what you’ve paid this year, and what you can pre-pay for next year, and you might be able to meet it. Say you’ve already spent a significant amount, and you’re only a few thousand away from the threshold. Consider stocking up on contact lenses, pre-paying for procedures like braces, teeth whitening, or Lasik. Alternatively, if you’re not near the threshold and you can anticipate those costs for next year, wait to start those payments until 2018, and you can meet the threshold then.

Tuition

The same applies for tuition. Consider making extra payments on tuition to take advantage of this deduction. If you don’t have the immediate funds, you can make these payments with the credit; if you accrue a small amount of interest, it can still be worth the savings.

Mortgages

Prepayment of mortgages is another great benefit, but you can only save the interest on your January payment, and not the following months. This is because your Jan 1 interest represents interest for the month of December, making it eligible for a deduction. Ensure you send this payment as early as possible, so it’s received before EOY.

Retirement

Making contributions to your retirement? Regardless of income, you should be. If you have low to mid income, you can take advantage of Saver’s Credit, worth up to $2,000 depending on your AGI (or $4,000 filing jointly). You must have an AGI less than $60,000 if filing jointly, $45,000 for head of household, and $30,000 for all other filing statuses.

If you aren’t able to take advantage of Saver’s Credit, you can still get a deduction. If don’t have one already, open an IRA (if you want to open a Roth IRA, these contributions are not deductible). You have until April 15, 2018 to open one and to make contributions. You can contribute up to $5,500 ($6,500 if you’re over 50), or your taxable compensation for the year, whichever is smaller.

In addition to the above, you can make an extra contribution through your employer-sponsored 401(k), 403(b), or retirement plan. The limit is $17,500, so if you haven’t met that and you can make an extra payment, take the opportunity to save some money that will not be taxed.

Avoid the ‘Kiddie’ Tax

A little thing called the kiddie tax was created to deter parents from shifting their investments on their kids that are in a lower tax bracket. This year, a child’s investment income is taxed after $2,100 at the parent’s rate until the child turns 19. If the child is a full time student, the tax remains until the child is 24.

Alternative Minimum Tax

Beware of accelerating tax deductions if you’re already in the Alternative Minimum Tax, or are in danger of triggering it. The tax was originally designed to prevent the wealthy from driving down their tax bill too much with deductions, but it now also affects the middle class. The AMT is figured separately from your regular taxes, and you must pay whichever is higher. Some deductions via accelerated payments are not deductible under AMT. For example, income and property taxes are not deductible under AMT, so making accelerating payments won’t benefit you. Crunch the numbers with your tax professional to be sure.

Amend Your W-4

While you’re anticipating the tax season and putting together your game plan, you may need to change the information on your W-4 and adjust your withholdings. If you might owe more than expected, increase your withholdings by claiming fewer allowances. Likewise, if you are set to get a refund, you might want to increase your allowances for bigger paychecks, especially as we move into the holiday season.

Defer Income

Postponing regular wages and salary usually isn’t feasible, but you may be able to defer your end of year bonus if your employer is willing. If you freelance or are self employed, this will be easier, as you can delay December invoices into the new year. Another way to defer income is to take capital gains in 2018 instead of 2017.

It doesn’t always make sense to defer income, but if you can manage, less income means less taxable income.

Loss Harvesting

It’s time to cut your losses. Sell investments like stock and mutual funds and then use those losses to offset taxable gains, dollar for dollar. If your losses are more than your gains, you can apply up to $3,000 of excess to cancel out other income. If you have more than $3,000, it can be carried over into next year. You can keep carrying over losses every year, which is a common practice amongst those that heavily invest.

Check IRA Distributions

For traditional IRAs, you are required to take minimum distributions starting April of the year after you turn 70 ½. Failing to triggers a 50% excise tax on the amount you should have withdrawn. When you make withdrawals, consider withholding tax from the payment to avoid having to make quarterly estimated payments.

Increase Your Tax Refund!

These are the big moves you can make before tax season starts – we bet you can take advantage of at least one! One caveat: As Congress attempts to pass tax reform, rules may change. Keep up on the blog to have the latest information for tax season.