The end of the year is coming on fast, but there’s still time to reduce your potential tax obligation and save money this year (and maybe even next). Here are some ideas to consider:
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Estimate your 2019 and 2020 taxable income. With these estimates you can determine which year receives the greatest benefit from a reduction in income. By understanding what the tax rate will be for your next dollar earned, you can understand the tax benefit of reducing income this year and next year.
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Fund tax-deferred retirement accounts. An easy way to reduce your taxable income is to fully fund retirement accounts that have tax-deferred status. The most common accounts are 401(k)s, 403(b)s and various IRAs (traditional, SEP and SIMPLE).
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Take your required minimum distributions (RMDs). If you are 70½ or older, you need to take required RMDs from your retirement accounts by December 31. Don’t forget to make all RMDs because there are significant fines if you don’t — 50 percent of the amount you should have withdrawn.
Also keep in mind that, even if you don’t have RMDs yet, removing a planned amount from your retirement accounts each year may be more tax efficient than waiting until you are required to do so.
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Manage your gains and losses. Rebalance your investment portfolio, and take any final investment gains and losses. When you have more losses than gains, up to $3,000 can be used to reduce your ordinary income. With careful planning, you can take advantage of this loss amount each year.
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Review your gift-giving strategy. Each year you may gift up to $15,000 without tax reporting consequences to as many individuals as you choose. Consider any gift-giving you wish to make up to the annual limit. This could include gifts of cash, property, or investments.
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Donate to charities. Consider making end-of-year donations to eligible charities. Donations of property in good or better condition are also deductible. Receiving proper documentation that acknowledges your contributions is important to ensure you obtain the full deduction. Have a plan by knowing your total deductions for the year to help you decide how much and when to donate. Pulling some donations planned for 2020 into 2019 may be a good strategy.
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Review your automated billing transactions. This is a good time to identify what automatic monthly expenses should be reviewed for reduction or elimination. You might also discover automated billing for services you thought were canceled. This specific review often catches errors that a simple account reconciliation might miss.
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Organize records now. Start collecting and organizing your tax records to avoid the scramble come tax season.
There’s a lot to consider in the tips above, and some if it might require some additional explanation. So if you have questions about how these tips apply to your own situation, please give us a call and we would be happy to help you make sense of it all.
This article carries no official authority, and its contents should not be acted upon without professional advice. For more information about this topic, please contact our office.