As the new year rolls in, it’s time to start thinking about your taxes. You may think the time has passed to alter how much you owe on your tax bill. However, there are a few steps you can take after the first of the year that may make a significant difference in what you owe the government.
Submit an Estimated Tax Payment
Though an estimated tax payment doesn’t lower your taxes, it can spread out your expenses. It may also prevent you from receiving an underpayment penalty and reduce the amount you pay in interest.
The Internal Revenue Service expects those who don’t have taxes withheld from paychecks to pay an estimated tax every quarter if they expect to owe more than $1,000. The final payment is due on January 15. If you neglect to pay and paid less than 90% of what you owe, you will incur a penalty.
Place High-Value Sales in a Deferred Sales Trust
If you intend an end-of-year sale of any high-value assets, you can place the sale in a deferred tax trust. Though this option must occur before the sale takes place, a Reef Point DST tax attorney can help you determine whether you would benefit from utilizing a DST for a last-minute sale.
You may also wish to speak with your tax attorney if you already have a DST for an asset sold previously. You and the attorney can discuss whether any changes need to be made to the trust to lower your taxes on anticipated payments.
Make a Retirement Account Contribution
If you are ineligible for a company-sponsored retirement plan, you can start or pay into a traditional individual retirement account. As long as you contribute a deductible payment before the tax-filing deadline, you can deduct the amount from the previous year’s taxes.
Any money you contribute will save you on your tax bill while potentially earning you extra income for your retirement. Though you take a hit on your out-of-pocket expenses for the year, it benefits you, not the government. Note that Roth IRAs are not eligible for a tax deduction.
Take Time to Itemize Your Deductions
No matter your income bracket, you may want to consider itemizing your deductions. Many people opt for the standard deduction, assuming that it wouldn’t pay to itemize. It can also be time-consuming if you haven’t maintained an organized record of deductible expenses throughout the year. However, it still may be worth the effort if you:
- Are self-employed
- Made charitable donations
- Own your home
- Incurred medical expenses
- Live in an area with a high tax rate
To benefit from itemized deductions, your qualifying expenses must exceed the year’s standard deduction for your filing status. If you qualify for the home office tax deduction, don’t be afraid to take it.
Get Help With a Deferred Sales Trust
Reef Point partners can help determine if a deferred sales trust is a good option if you anticipate selling high-value assets. Contact us to learn more about what we do and whether a DST is right for you.
Sources:
https://www.irs.gov/newsroom/basics-of-estimated-taxes-for-individuals
https://www.irs.gov/retirement-plans/ira-deduction-limits
https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023
https://www.irs.gov/newsroom/how-small-business-owners-can-deduct-their-home-office-from-their-taxes