CBS News – If you’re finished with holiday family gatherings and gift returns, you should start thinking about taxes.
While the April 15 deadline to file your federal income tax return is still months away, making some year-end moves now could reduce the amount of taxes you’ll owe to Uncle Sam.
The key is finding and taking deductible expenses that can reduce your taxable income.
Deductible donations to charity can be used to lower your tax bill. To claim it, you must itemize your tax return and the contribution needs to be made by Dec. 31. The charity must also be a qualified tax-exempt organization recognized by the IRS.
For cash donations, you can send a check, pay by credit card and cell phone texts. For amounts over $250, get a written receipt of your donation from the charity.
If you’re giving clothing and household goods, they should be in a good or better condition. You can claim the fair market value of these items as a deduction. If the value of the donated items is more than $500, you’ll need to fill out federal tax Form 8283 and list your non-cash charitable contributions.
You can also donate stocks you’ve held long-term and that have appreciated in value. Janet Bodnar, editor of Kiplinger’s Personal Finance magazine, says giving stocks that have risen in value to charity is better than giving cash.
“The good thing here is it’s really kind of a double tax break. First of all, you get to take a tax deduction for the appreciated amount of the assets that you have. But, you don’t have to pay any taxes on it because the money’s going to the charity. And, charity doesn’t have to pay taxes on it either,” says Bodnar.
If you’re paying for your child’s college education or will be soon, then consider a 529 plan. These are state-sponsored college savings plans. They’re available in every state and the District of Columbia, except Washington and Wyoming.
The money grows tax-free and remains tax-free when used to pay for higher education expenses such as tuition, housing, and books. About two-thirds of the states and the District of Columbia that offer the program will also allow you to deduct from your state tax return some or all of your contributions.
“Anybody can contribute to it. It can be a parent. It can be a grandparent. It can be a very kind aunt or uncle. You can set up an account for a child on your own and there can be a number of accounts set up for the same child,” according to Bodnar.
To get tax break for 2014, you can open and fund a traditional IRA. You also have until April 15 to gather the funds to set up the individual retirement account.
The amount you can contribute per year is limited to $5,500, or $6,500 if you’re age 50 or older.
With a traditional IRA, the earnings grow tax-deferred until you withdraw them at retirement.
Another type of retirement account is a Roth IRA. You can only contribute “after-tax” dollars to the account and there is no tax deduction. However, the money grows tax-free and remains tax-free at retirement.
If you don’t have the money to put towards an IRA, Bodnar says to consider using your tax refund. She says it’s a “little bit of found money and you can use that to open the retirement account.”