When you’ve been paying tax the entire year, the last thing you want to do is to pay more by the end of the tax year. Good thing there are ways to reduce tax bill legally and even get credits to put money back in your pocket with little effort.
In the UK, getting the right tax code is one of the top ways to save on tax. Getting the wrong one is not all that bad, however, as long as you end up overpaying rather than underpaying tax.
Submitting your paper tax return on time or before the 31 October deadline is another option.
Anywhere else around the world, saving money from year-end tax runs from simple to a bit complex.
Year-End Tax Money-Saving Tips
Make charitable donations
Actual charitable contributions are tax deductible when pledged within the tax year. Whether you donate cash or credit, you can save on tax on the amount that you actually contributed.
So for those British nationals who are working in the US, your tax benefits on charitable donations contributed to qualified charities must be supported by a dated receipt or bank record.
Unless in good used or better condition, clothing and household items are not deductible.
Don’t pay estimated taxes out of pocket
In the event that you underpaid tax, use withholding’s from your retirement plan distributions to pay estimated taxes.
Estimated tax payments usually apply if:
- You owe 90% of taxes for the current tax year
- You owe 100% of taxes for the previous tax year. If your adjusted gross income exceeds certain amounts, 100% could be increased to 110%
Estimated taxes may vary whether you are single, married filing jointly, married filing separately, or head the household.
Offset gains on stocks against losses
If you have stocks that have depreciated, liquidate them and then deduct your losses. This will ensure that trades settle by year-end and that your losses will not affect your gains. If you have considerable gains on other stocks, selling your depreciated stocks can help reduce the taxes you own on the gains.
To maximise tax benefits, experts recommend that you sell losing stocks with short-term capital gain and winning stocks with long-term capital gain.
Check your address with the tax agency
An incorrect address reported with the IRS could mean that you miss important communication from the agency and any refund checks sent to you. In the event that the taxman needs an important document from you, missing their mail could mean losing your chance at a possible refund.
This why it is important to check your address.
But just to be sure, have your tax refund deposited directly to your account to avoid any missing or unreceived checks.
Make contributions to retirement accounts
Funding a retirement plan could mean additional deductions to reduce your tax payment.
If you have a Traditional pension scheme, this will work if you are eligible to receive a deduction for your contributions. That is, you are neither married to someone who is an active participant or an active participant yourself.
In the event that your spouse is an active participant, whether or not your traditional pension is deductible will depend on your modified adjusted gross income and tax filing status.
You should also look into your eligibility for Expert tax agent assistance, consider a flexible spending account, familiarise lesser-known deductibles, such as expenses incurred for a job and depreciation of a home computer used for business, and to gather all documents that are related to tax and those that prove deductible expenses.
If you would like assistance with your cashed out pensions, UK Tax Refund, Self Assessment refund or if you have general questions about your UK tax position as an offshore resident or temporary UK resident contact our tax agents today.