Today is the winter solstice, also the day a certain calendar ends, and also the end of the world. And yet, somehow taxes will remain. That being said, do you need to do things to reduce your taxes? Every situation is different so let me mention a few things that have to be done before year end, and one that can be done later.
In Ohio it is possible to deduct contributions to an Ohio 529 plan. But the Ohio tax savings on a $2,000 contribution may not be that great, though. Still, this is a “do before year end” thing. Hey at least you’re trying to save for college.
Selling Stuff At a Loss
This seems like a standby on any tax savings list you read off Yahoo or other web portals. It annoys me, but yes, you can get some savings from selling investments at a loss and yes this is a “do before year end” thing. Yes there is that $3,000 a year limit but if you are offsetting similar gains you can skirt around those rules if everything falls correctly. The better option is to not have any investments at a loss that will never generate a gain for you, but hey, it is not that easy is it?
Increase Itemized Deductions
This would also fall under the “you have to spend it in order to save it” theory. For example, charitable contributions can save a lot of taxes if you do it right, but on the other hand, you have to spend money in order to save money. So it depends on your goals. Remember charitable contributions doesn’t have to be cash. It can also be items such as bags of clothes, a car, stock, car mileage – many different things. There are different rules for all of them relating to record keeping and limits on how much you can deduct. (They are pretty high though). If you hit a limit, though, you can always carry forward to next year.
Sometimes you may be able to pay a half of your real estate taxes in the year prior than you otherwise would. Certain counties will let you do that. If you are on the cusp of itemizing, you can try to move a payment into a current year and use the standard deduction the next year. That way you get more bang for your standard deduction.
Another item is to pay your Ohio, or other state, estimated taxes before year end. You can deduct taxes paid to states and cities, so if you generally owe or pay estimates, you can pay before December 31st and move that deduction into 2012.
Currently the 50% bonus depreciation for new assets expires and will not continue into 2013. So if you operate at a loss, it may make sense to buy new equipment to get the bonus depreciation in 2012. That is because bonus depreciation works in a loss scenario whereas Section 179 (another way to write of a capital purchase) does not allow a deduction in a loss scenario.
This one still remains as a common way to get a tax break without forever parting with your money. The deadline is not December 31st, though; it is the due date for your tax return without extensions. So we can see if it will help you while we calculate the return and you don’t have to guess. Nice isn’t it?