Five Year-End Tax Tips
- By:
- Anders Bylund - MortgageLoan.com
The tax man cometh, whether you like it or not. Here are a few things to keep him as far away from your stash as possible next April.
Sell loser stocks
If your portfolio includes stocks, bonds, or mutual funds, you may have made some profitable sales earlier in the year. Those capital gains are taxable, because the IRS wants its share of your profits. Offset these gains with unprofitable sales-get rid of your losers near year's end to lower your tax bill. Then, get ready to reinvest that cash in something better for the coming year. This doesn't just help your tax bill, it also keeps your portfolio pruned and healthy.
Max out your retirement accounts
Pour every allowable cent you can into your 401(k), 403(b), Keogh, or IRA accounts. Your contributions will be deducted from this year's taxes, and your money will grow tax-free until retirement. It's an especially sweet deal if your employer will match your contributions, giving you a higher return right out of the gate. If you haven't been sending money into that 401(k) over the year, you might be able to make a catch-up contribution late in the game.
Defer income
Pushing off some paychecks into the next tax year will lower your tax bill. There's a trade-off-your tax liability for next year will be higher, but this can make sense if you plan it right.
Check your yearly income a few weeks before the new year. If you're headed into a higher tax bracket, consider billing some of your work in January instead. This is easily done if you're a contractor or otherwise self-employed, but trickier when working for a major corporation. You might still be able to move your Christmas bonus into the new year. Discuss it with your payroll department.
Pay your January mortgage now
On the flip side of moving back your income, you can move your deductible bills forward instead. This includes mortgage payments, where the interest may be fully deductible depending on your income. Next year's taxes will increase in proportion to this year's extra deductions, so plan accordingly.
If you're self-employed, invest in your business to lower your taxes. Buy your office supplies, subscribe to professional magazines, or replenish your store shelves.
Last-minute deductions
There are plenty of deductions that you can bundle up late in the year, especially if you itemize. Make charitable contributions, whether in cash, goods, or stock. Donating stock after it's gained in value also avoids paying capital gains taxes on that holding.
Medical bills are only deductible after exceeding a steep threshold-7.5 percent of your adjusted gross income. If you have elective or movable medical expenses, try to group them into every other year. Re-order your contacts lenses in January and December of 2008, for example, and none at all in 2009.
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