- Maximize Deductions. I want to make a big push at the end of the year to send a large payment to my student loans. Why? Because I owe them so much money that every payment I make goes solely toward interest, which is tax-deductible up to $2,500. So basically, the more I pay in student loan interest this year (which I'm paying anyway somehow or another), goes toward reducing the amount of income I'm taxed on this year. I've had an increase in pay since getting my second job, so I'm not sure if that will bump me up into a higher income tax bracket--I'll take any deductions I can get.
- Charitable Deductions. Even when I moved cross-country and donated most of my furniture to the Salvation Army, I still couldn't get to the $250 threshold where I could start writing off charitable contributions. But if you're some one who regularly donates goods or money over the course of the year, or someone who donates a lot during the holiday season (make sure it's to a qualified organization)--save your records! In order to deduct charitable contributions, you need to itemize your tax return using form 1040 Schedule A, and you need to send in your charitable contribution records for verification. Charitable tax deductions may be going away in the future (though I really, really hope not). If you have some time post-holiday or post-holiday shopping, get your records in order so you can file and get your return that much faster.
- Roth IRA Contributions. A Roth IRA only allows a person to contribute $5000 per year, so in addition to trying to send a lot of money this month to the student loan people, I'm also going to try to sock a large amount in my IRA. I'm nowhere near $5000 and won't be by the end of the year (since I started my IRA only six months ago), but I would like to get as close as I can to maximize that lovely compound interest (my retirement is going to be so exotic!). In this case though, I'm determined to earn $100 in savings interest for this year, so I'm going to make a big contribution to my IRA and student loans right at the end of the month so I'll earn the most interest on my savings account.
One thing I remember my accounting professor in high school drilling into our heads is that we should never, ever claim any dependents on our W-2 forms but should instead claim status Exempt. That way, we wouldn't be taxed over the course of the year (but Social Security would still be taken out), and we would just make a payment in April to the IRS for what we owed. His logic was that we could invest the money that we would have gotten as a refund, and therefore make more money. I tried it one year, and found that I absolutely hate owing at the end of the year, and that I wasn't disciplined enough at the time to invest my money into any kind of account that had a decent rate of return--I was only 16 after all.
I'm curious, how do people decide what to claim? I don't think I'm eligible at this age to claim Exempt even if I wanted to, so I claim 1 dependent at one of my jobs and 0 at the other. That way, I figure I'll just about break even with state and federal, and if I do have to pay in something, that something will be less. That way I'm not really losing any potential interest (and hearing Mr. Wicker's voice in my head), but I'm also not stuck with a huge payment that ruins my spring.
Hopefully, most of my readers don't have more than one job (unless you want more than one), so don't have that option, but I'm curious what the most common choice is.