Tips For Year-End Tax Planning
We have compiled a checklist of actions that may help you to save taxes if you act before year-end. Not all actions will apply to everyone, but many of you will benefit from numerous items. We can narrow down the specific actions that you can take once we discuss or meet with you to tailor a particular plan. In the meantime, please review the following list and contact us if we can advise you personally on which tax-saving moves to make:
If you think the above tips do not apply to you, there is one good tip that we are sure will apply to everyone - organize and keep your records. Establish one location where everyone in your household can put tax-related records during the year. This will avoid a scramble for misplaced mileage logs or charity receipts come tax time. Also, keep all your tax-related records for 3 years after your tax return is filed.
These are just some of the steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you.
- Now is a good time to review your withholding to make the taxes you owe close to the taxes withheld from your paycheck. If you normally get a large refund, you may want to decrease your withholding so you will receive more money in your paycheck. Those facing a penalty for underpayment of estimated tax may be able to eliminate or reduce it by increasing their withholding prior to year-end. You may also need to adjust your next year’s withholding when there is or will be changes to your filing status or income levels, such as having a baby, getting married or divorced, or being unemployed for part of the year.
- Consider itemizing deductions. If you usually claim a standard deduction, you may be able to reduce your taxes if you itemize deductions instead. If your itemized deductions typically fall just below your standard deduction, you can “bundle” your deductions by stacking two payments into one year. For example, you can pay your property taxes every other year. The standard deduction in 2017 for a married couple is $12,700. If the only item you can itemize is the annual property tax payment of about $9,000, then your itemized deductions are only $9000 and you will not be able to use it. If you pay it every year, you will never be able to use it as a deduction. Instead, you can pay your 2017 and 2018 property taxes both in January and December 2017, then you have an $18,000 deduction you can use to itemize on your return, which is $5,300 more than the standard deduction. On your 2018 return, you can still take the standard deduction without a payment in 2018 of any property taxes.
- If you set aside too little for your health flexible spending account (FSA) for this year, increase the amount set aside for next year. The earnings in your FSA account are tax-free if used to pay for or are reimbursed for qualified medical expenses. Also, even if you do not itemize on your tax return, you can still claim a deduction for the money you contributed to an FSA account.
- If you own an interest in a partnership or an S-corporation, you may want to increase your basis in the entity so you can deduct a loss from it.
- If you a self-employed and have not done so, you should consider setting up a self-employed retirement plan, such as a SEP-IRA or a 401(k) plan.
- If you are an IRA owner over age 70-1/2 and you are planning to make charitable contributions before year-end, you should consider making the contributions directly from your IRA by the IRA trustee. You can exclude up to $100,000 of income withdrawn from your IRA account if the funds are donated directly to most public charitable organizations.
- Make use of the annual gift tax exclusion before year-end to save gift and estate taxes, because this exclusion cannot be carried to future years. In 2021, you can give $15,000 each to unlimited donees; in 2022, this amount is increased to $16,000. Also, if you give your income-earning property such as stocks to family members in lower tax brackets and they are not subject to kiddie tax, you can save your total family income taxes.
- It may be advantageous to try to arrange with your employer to defer your bonus until 2022 to lower your taxable income in 2021.
- You may want to consider using credit cards to prepay expenses that can generate deductions for this year such as charitable contributions or business expenses.
- Things are a little bit more complicated for high-income folks when thinking about your year-end tax planning. You have to take into consideration the 3.8% Net Investment Income Tax. This surtax applies to taxpayers with net investment income and having modified adjusted gross income (MAGI) of more than $200,000 for singles and $250,000 for married couples. If you have net investment income and your MAGI is a little over the threshold amount, you may want to consider deferring your income or increasing your deductions to avoid the 3.8% surtax.
- Those who are contemplating marriage or divorce need to watch out for how they can be affected by the marriage penalty, which is a higher tax rate filing a joint return for higher income folks.
- Those receiving Social Security benefits should consider taking a number of steps to reduce or eliminate tax on their benefits.
If you think the above tips do not apply to you, there is one good tip that we are sure will apply to everyone - organize and keep your records. Establish one location where everyone in your household can put tax-related records during the year. This will avoid a scramble for misplaced mileage logs or charity receipts come tax time. Also, keep all your tax-related records for 3 years after your tax return is filed.
These are just some of the steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you.