While you may be focused on your New Year’s Eve plans, before the clock strikes twelve, here are a few year-end tax moves to reduce your taxes.
- Do a quick analysis
Take a few moments and utilize a tax calculator to estimate your taxes. The Internal Revenue Service (IRS) has a withholding calculator that can quickly estimate your expected tax liability. Using information from your last paycheck, projected profits from self-employment and rental activities, current deductions and much more, you can get a good idea of what you may owe.
- Sell the losers
The end of the year is a great time to review your investment portfolio and part ways with losers! Determine whether you incurred capital losses during the year. If so, you may want to consider selling these investments to offset any capital gains. This way you are able to reduce your capital gains taxes.
The IRS will allow for individuals to deduct up to $3,000 in capital losses. But be careful, before making any decision to sell or buy any investment, you want to make certain it fits with your overall investment strategy.
- Accelerate deductions
Why wait for January 1 to pay for certain expenses? If you are a homeowner consider paying your property tax bill or prepaying your mortgage before year-end. If you are a business owner, determine whether you have equipment needs and consider making these purchases now.
Also, consider other deductions as well. This is a great time to contribute to your favorite charity. You could also pay for professional licenses, dues and other business related expenses. Making these extra payments before year-end will allow you to accelerate deductions into the current year and reducing your tax bill.
- Zero out your spending accounts
Don’t forget that you have until December 31st to utilize your flexible spending accounts (FSAs). Flexible spending accounts allows individuals to save tax-free money for medical and dental expenses.
In most cases, these accounts are known for its “use it or lose it” rule, which means you have until year-end to pay for qualified expenses. While there are some employers who may allow for a grace period or carryover, it is important to check with your provider to understand the terms of your spending plan.
- Stash for your retirement
The end of the year is a great time to save more for retirement. For the year, 2015 and 2016, individuals can save up to $18,000 into their 401(k) retirement plans. The great thing about most 401(k) plans is that many employers will match your contributions. Therefore, if you haven’t taken advantage of it this is now the time to do so.
Lastly, you may want to consider contributing to an individual retirement account (IRA). Individuals can fund IRAs up to the greater of $5,500 ($6,500 for individuals over 50) or his or her taxable compensation for the years 2015 and 2016. Keep in mind, unlike 401(k) plans, taxpayers have until April 15th to fund an IRA to reduce this year’s taxes.
Remember: your choice, your future!
Kemberley Washington is a certified public accountant and business professor at Dillard University. She writes a blog at Kemberley.com and is the author of The Ten Commandments to a Financial Healing.