Your Money Matters: Mid-year tax planning tips
Mid-Year Tax Planning Tips:
Declare income when your tax bracket is low.
A simple example would be if you were receiving a bonus and your company would allow you to take it this year or next year, you’d want to take it in the year when you were in a lower tax bracket.
Pay deductible expenses when your tax bracket is high.
Returning to the same example above, let’s say that you received that large bonus in 2013 putting you in a bracket higher than your normal bracket. You may have certain deductible expenses like state income tax or non-emergency visits to your doctor that you can pre-pay in December instead of waiting until January to offset your higher income in 2013.
Postpone incurrence of income tax liability whenever possible.
A simple example of this would be funding a 401k plan. The money going into a 401k plan is avoiding tax liability. In most cases when you retire and pull the money out of the 401k you’re going to be in a lower bracket, and therefore pay lower tax when it comes out.