Do you have a fat tax refund coming to you next year or will you owe Uncle Sam? If you don’t know, find out soon. If you will owe the IRS in April, there ways to reduce your tax burden now. While many year-end tax tips benefit homeowners and taxpayers with dependents, there are a few ways young, single taxpayers can reduce their tax burdens too.
Check Your Investments –– If you already have non-retirement investments, December is a good time to give your portfolio a check-up and the best time to unload under-performing stocks. This will help offset any capital gains and up to $3,000 of your wages.
Boost Your IRA –– If you have a traditional Individual Retirement Account, annual contributions of up to $5,500 are tax free. Better still, you have until April 2015 to make contributions that can count on your 2014 return. Just remember that you’ll pay those taxes later if you make an early withdrawal from a traditional IRA. Roth IRAs provide – in most cases – tax free withdrawals, though contributions are not tax-free.
Still Owe? — Start planning now to pay your tax tab come April. With four and a half months to save, you should be able to stash away your tax bill without too much sweat. And, you can throw the cash into a high interest savings account to enjoy the interest you wouldn’t earn had the taxes been withheld from your paycheck.
Tweak for Next Year —– If you’re a wage-earner and expect to owe more than $1,000 to the IRS this year, chances are your withholdings are off. Adjust your withholdings with your payroll manager on or before the new year, including allocating an additional amount to be withheld, if necessary. Hint: If you work more than one job, claim the appropriate number of allowances on your largest paycheck and zero on all others.