Yahoo Finance Three End-of-Year Tax Moves That Aren’t Worth the Effort
As the end of the year approaches, many individuals and businesses scramble to make moves to minimize their tax liability before January 1st. There’s nothing necessarily wrong with doing this. While starting your tax planning early is always preferable, even last-minute actions can be helpful in lowering that tax bill or, even better, increasing your refund.
Related: This Is the One Type of Debt That ‘Terrifies’ Dave Ramsey
Learn: What To Do If You Owe Back Taxes to the IRS
The big question is whether these end-of-year moves will yield the desired benefits. In many cases, they can be a waste of your time – or even cost you money. Here are three commonly considered end-of-year tax moves experts say might not be worth the effort.
Buying a Vehicle for Your Business
Section 179 of the Internal Revenue Code allows business owners to deduct the cost of a qualifying vehicle from their taxable income. This includes heavy SUVs, pickup trucks, and vans that weigh over 6,000 pounds and are mainly used for business.
Logan Allec, a CPA and the owner of tax relief company Choice Tax Relief, said that dealers often tout this deduction as a selling point of these vehicles because the full purchase price is eligible for what’s called “bonus depreciation.” Owners must capitalize most business assets and depreciate them over time in future years. Bonus depreciation allows the business owner to apply that purchase price towards their current-year tax liability instead. For 2023, 80% of the purchase price of a vehicle can be deducted – assuming that it is 100% used for business purposes.
“The reason I think that the juice is often not worth the squeeze with this ‘tax move’ is that the tax benefit often justifies a silly purchase – do you really need an expensive vehicle in your business? Or does your existing vehicle work just fine? Don’t let the tax tail wag the dog!” Allec said.
Last-Minute Home Improvements
Energy efficiency improvements made to your home during the tax year may qualify for a tax credit if they meet certain qualifications. Things like new doors, windows, insulation, central air conditioners, heat pumps, and even home energy audits can all be qualified expenses.
Tax attorney and CPA David Klasing, owner of the Tax Law Office of David W. Klasing, said that making these sorts of improvements solely for the tax benefit is a bad idea. The actual process of getting the credit is a real pain – an additional form is required to be filed with your tax return, and a list of restrictions must be followed. For example, there are different dollar maximum credits for each category of improvements. If you use your home partly for business, it affects the amount of credit you can claim. If you received any rebates or subsidies from your public utility, that must be subtracted from the credit – but if your state offers energy efficiency incentives, those often don’t have to be subtracted. It’s enough to make your head spin.
“[With] only a $3,200 credit maximum to this tax savings, I would recommend to stay away from it and look to save money on your taxes in another area,” Klasing said. These types of improvements typically end up costing thousands of dollars at least. While there are obviously other benefits to making your home more energy efficient, those savings can take many years to offset the cost of the work.
Making Charitable Donations
Donating your time, money, or possessions to charity is both worthwhile and commendable – but if you’re looking at it as a strategy to reduce your tax bill, you may be wasting your time. Matthew Stratman of United Tax said the charitable deduction is only relevant when itemizing deductible expenses rather than taking the standard deduction. For the 2023 tax year, individuals receive a standard deduction of $13,850 and married couples filing jointly receive a $27,700 deduction.
“For many, the standard deduction often surpasses the benefit gained from itemizing specifically for charitable contributions. Therefore, evaluating the broader impact and personal fulfillment from charitable giving beyond tax benefits is crucial when considering donations,” Stratman said.
Consider a Tax Professional
If all of this seems complicated, you’re not wrong – the US tax code is thousands of pages long, and when you include the official guidance, that number jumps to tens of thousands. It can be difficult to get your taxes right, and failing to do so can come with fines or even criminal charges. Don’t be afraid to consult a CPA, Enrolled Agent, or other tax professional for advice on your situation. They can help you make the smart moves to lower your tax liability and avoid wasting time and effort.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: Three End-of-Year Tax Moves That Aren’t Worth the Effort
