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In the midst of all the holiday excitement, don’t forget tax season is just around the corner. If you’re wondering how to reduce your taxable income at the end of the year, here’s what you need to know to possibly owe less on filing day.

Contribute to retirement accounts

Retirement could be a year away or more, but it’s always good to contribute to your plan. That’s because maxing out your 401(k) and Individual Retirement Account (IRA) contributions may help reduce your tax bill and help you reach longer term goals.

The IRS sets annual maximum 401(k) contribution limits as well as contribution limits for your IRA. If you’re under that cap and your finances allow, go ahead and bump up those contributions to get close to the maximum limit set by the IRS.

Help a charity and help yourself 

If you itemize your tax return, contributing to a charity is a good way to get an additional tax deduction. In addition to cash, you can donate appreciated stock or even personal property.

If giving clothing or household items, remember the IRS only allows deductions for items that are at least in good condition, and only at current fair market value for the used item. Be sure to ask the charity for a receipt or letter with your donation you can reference with your returns. Keep a copy with the rest of your tax records.

Look for lesser known deductions

Did you spend a lot at the doctor this year? Were you hospitalized at any point? If your out-of-pocket medical expenses amounted to more than 7.5% of your adjusted gross income, include them in your itemized deductions. Other common expenses to itemize include some portion of state taxes and interest paid on your mortgage. Remember that itemizing is only worth it if the total amount you would itemize is greater than this year’s standard deduction.

If you do choose to itemize, there are other less commonly known deductions that may apply to you as well, such as interest paid on student loans.

Find and organize receipts

Gather and organize your receipts now, so they’re ready when you visit your tax preparer. If you don’t have a filing system for your tax records, start one. Having all your tax records organized is a real timesaver come tax prep time. Make sure you get every credit and deduction that is coming your way! (Plus, the IRS typically requires you to keep tax records for at least three years unless your tax preparer suggests otherwise.)

Decide how you’ll file your taxes

You could prepare your taxes on your own or seek help from a professional. If you like doing taxes yourself, members can get a special discount using TurboTax® online.

The advice provided is for informational purposes only. Contact a tax advisor for additional guidance. 

TurboTax® and TurboTax Online are registered trademarks and/or service marks of Intuit Inc. Use is governed by Intuit’s applicable license and user agreements and other service terms, which you should review prior to using TurboTax. Intuit is not affiliated with LGFCU or its affiliates.

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