Education credits. If you’re attending college, or paying for a spouse or child who’s enrolled, you may be eligible to claim the Lifetime Learning Credit for 20 percent of the cost of tuition and fees up to a maximum of $2,000. There’s no limit on the number of years the credit can be claimed for each student. The credit may be particularly helpful to graduate students and those taking courses to improve job skills but not pursuing a degree. The American Opportunity Tax Credit is worth up to $2,500 for qualifying educational expenses (such as tuition and textbooks) for undergraduate college students. A taxpayer cannot claim both the American Opportunity Tax Credit and the Lifetime Learning Credit for the same student in one year.
Home mortgage interest. Boost your 2013 mortgage interest tax deduction by prepaying one extra month’s interest. It’s tax-deductible for the year in which it’s paid, so pay for January 2014 by late December to claim the interest as a deduction.
Defer income. Unless you have reason to believe that next year will bring you a higher income and move you into a higher personal income tax bracket, you may want to defer income until after the first of the year. If you are self-employed, for example, send the last invoices out late in December so you will more likely receive payment in January.
Take your distribution. If you’re older than 70 1/2, be sure to take your required minimum distribution from your traditional IRA and 401(k) retirement fund. Otherwise, the amount not withdrawn is taxed at 50 percent.
If you’re self-employed, stock up. This is the time to buy all of the business equipment and supplies you haven’t yet purchased. Make sure to mark and save your receipts.
Prepay your state and/or local taxes. If you don’t think your personal income tax bracket will be higher next year, and you’re not affected by the alternative minimum tax, you can make state and/or local tax payments before the end of this year so you can take a deduction this year.
Make charitable donations. If you have extra cash, donate money to charity. Save the receipts and use the charitable donations as deductions on your tax return. These are some of the ways in which you can make appropriate changes to lessen your tax bill.
Sell off securities. If you have a large net capital gain so far this year, you might want to sell some stock to generate a loss before year end. Doing so could reduce the amount of tax you pay this year. However, if you sell stock to generate a loss, you’re prohibited from purchasing substantially similar stock. This is 30 days before or after the sale that generated the loss.
Make flexible spending work for you. Make sure you have enough medical expenses in 2012 to meet the amount you set aside in your flexible spending account. If you don’t, you’ll lose the money. If you have extra money in the flexible spending account to spend.