It’s easy to get caught up in the holiday spending madness, but the tax man cometh.
April 15 is still months away, but December is the time taxpayers can help reduce the amount they owe the Internal Revenue Service with some last-minute spending changes.
Finding deductions is much easier for filers who itemize, but there are options for many people in several income brackets.
All taxpayers should look at their own incomes to determine whether taking certain financial actions in December is worth it.
"You really want to look at your income, and if you do have income, you’ll want to look at that," said Terry Marti, an enrolled agent with H&R Block in Cottonwood Heights.
Charitable donations » As the spirit of the season takes hold of many Utahns, making donations to charities can have the double benefit of helping a worthy cause and providing a tax benefit, said Bill Brough, vice president of the Utah chapter of the National Association of Tax Professionals.
Not all donations have to be made in cash. They can be in-kind donations, accepting gently used items instead.
"By doing something like cleaning out a garage or closet and donating the items to a qualified charity, taxpayers will be able to take tax benefit on their taxes," said Bill Brunson, spokesman for the Internal Revenue Service.
It’s essential, though, that the charity be recognized as a 501(c)(3). To check, visit www.irs.gov.
It’s also important that those making donations check to make sure the group they are donating to is legitimate.
"Sometimes people get lured into making contributions that either aren’t reputable or are just flat-out fraudulent," said Rob Brough, executive vice president of Zions Bank.
He warns donors to be wary of emails that contain links to a website as "fraudsters can create spoof sites" that look real but in fact are not. Instead, he recommends going directly to a website by typing in the URL or calling a familiar phone number.
Retirement fund contributions » For those who have a 401(k) or an IRA, adding extra money at the end of the year can lead to a tax benefit as well.
"The issue there is you pay for the benefit you get," said Bill Brough, who is an accountant at Sandy’s Bottom Line Bookkeeping and Tax. "You still have to give up the money."
But he recommends it for anyone who has the cash on hand because planning for retirement at any age is important.
"The wonderful thing about using an IRA instead of a savings account is it clamps down on temptation to withdraw it early because of the penalties," Bill Brough said.
Mortgage » Homeowners can look at their income for the year, and use a tax calculator to estimate how much they’ll owe in taxes. If it’s high, making an extra mortgage payment can help reduce taxes. However, it will impact the following year’s taxes, the IRS’ Brunson warns.
"Sometimes you can cause something to happen in the accounting period you’re in, but keep in mind there might be a net result in the subsequent year," Brunson said. "If you make another month’s mortgage payment in December, you get a benefit in 2013, but it will affect you in 2014."Next Page >
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