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A Different Kind Of Holiday Gift: Tax Moves To Make Now Before Year's End

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A Different Kind Of Holiday Gift: Tax Moves To Make Now Before Year's End

It's still months away, but planning ahead for tax season 2016 can lower your income taxes and pay off in a big way. Additionally, in order to get the most bang for your buck next tax season, many of the most beneficial moves need to be made before December 31.

Below are just a few things that can be done today that can have a significant influence on next year's tax filing. Whether you are hoping to reduce your taxable income or cash in on credits and deductions, acting now can pay off later.

401(k) Contributions

The annual cutoff date for 2016 tax deductions for 401(k) contributions is December 31 of the previous year – in other words, to maximize contributions and reduce taxable income, increase contributions now.

The benefit of acting now as opposed to waiting until the last week of December is that planning ahead will ensure that the contribution is done, instead of waiting post-holiday spending and coming up empty-handed.

Additionally, by setting money aside specifically for 401(k) contributions, you will not only reduce your taxable income, but also foster your retirement savings.

Related Link: Last Minute Tax Tips

529 Plans

Another way to reduce taxable income while helping others is to contribute to a 529 plan, a savings account set aside specifically for college education.

One note about 529 plans: Pay attention to tax credits and deductions that may be available based on state. Do not miss out on additional savings where applicable.

Kiplinger's Sandra Block commented, "Thirty-four states allow you to deduct at least a portion of your contribution on your state return, so check out your own state's plan first. However, you can invest in any state's 529 plan."

Charitable Giving

Contributions to charities are considered tax deductible. Like 401(k) contributions, tax breaks for charitable giving need to be completed before December 31.

Submit itemized deductions at the end of December to ensure that the tax benefits will be relevant for tax season 2016.

Keep in mind that not every donation is tax deductible. A good rule of thumb is to consider if anything is given in return for the donation. Financial Advisor Carrie Houchins-Witt comically explained, "Unfortunately, you won't be able to write off any part of those 20 boxes of Girl Scout Cookies you just ate."

However, she recommended sincerely, use IRS online tools to help determine which donations are eligible and which organizations have proper qualification statuses.

Related Link: 3 Tips For A Year-End Tax Checkup

Regardless of whether you file your own taxes or rely on the expertise of financial advisors/tax preparers, these reminders can help eliminate tax season stress and help ensure your own level of financial know-how and stability.

Steps made today can have significant influence later down the road. Take advantage of tax benefits now to help your household come April 2016.

 

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Posted-In: 401(k) 529 account Carrie Houchins-Witt Kiplinger Sandra BlockEducation Personal Finance General

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