3 Year-End Money-Saving Tax Tips

If you've got some money and you're in the business of saving as much of it as you can legally,* here are a couple of ideas on how to do so.

1)  Max out your traditional IRA - If you are under 50 years old, you are eligible to put as much as $5,000 into a traditional IRA account.  The nice thing about a traditional IRA is that you are investing money in the account post-tax, but the government sees it as a pre-tax investment.  Thus, when you file your taxes, you will receive money back for the amount that you invested in your traditional IRA that you've already paid taxes on.  Bear in mind that the above $5,000 limit is the limit for any and all IRA accounts you may have (that is, if you have both a Roth IRA and a traditional IRA, the total you can invest in both combined for 2011 is $5,000 - e.g., $2,500 in the Roth, $2,500 in the traditional).

2)  Harvest losses - The market is picking back up, but if you have stock or mutual fund investments in a non-tax-advantaged acccount (i.e., not a retirement account), you can sell off some of your investments at a lower price than you bought them for in order to offset taxes that you will pay for profits from other investments.  While you will definitely lose money on your investment, you will pay less in taxes.  Five Cent Nickel does an excellent job of explaining this concept here.

3)  Donate to a charity or non-profit - Now wait a minute, you say.  I'm reading this because I want to keep my money, not give it to the poor!  That's a fair enough attitude, Ebenezer, but it is worth noting that money donated to charities and/or non-profit organization (such as THEATRES) is money that you can deduct from your taxable income and therefore pay less money in taxes on.

*If you're more interested in saving money illegally, I recommend not hiring the man in this video.

Photo by soukup.

This post was featured in the Carnival of Personal Finance #340.