This year is quickly coming to an end, so now is the right time to do a quick review to make sure that you’ve done everything you need to in this calendar year. Here are a few items to consider:
- Take required minimum distributions (RMDs). If you are age 70½ or older, you need to take RMDs from certain retirement accounts before December 31 to avoid a 50% penalty. Accounts from which you must take RMDs include most IRAs (except Roth IRAs) and 401(k)s. Your annual RMD is calculated by dividing the prior December 31 balance by the life expectancy factor provided by IRS tables.
- Look for your IRS PIN. If you are a victim of IRS identity theft, you will be mailed a one-time use personal identification number (PIN) as added security. You can expect to receive this PIN in the mail sometime in December. Save the PIN in a safe place since it will be required to file your tax return.
- Contribute to retirement accounts. Making contributions to tax-advantaged retirement accounts like a traditional IRA or 401(k) is a great way to lower your tax liability even if you don’t plan to itemize your deductions.
- Tax loss harvesting. If you expect to have capital gains from your investments, selling stocks in a loss position will offset some of those gains and can lower your tax liability. In fact, you have more losses than gains in a year, you can claim up to $3,000 of the excess losses to decrease your ordinary income. Timing matters with investment sales and income taxes, so having a year-end strategy can help lower your tax bill.
In addition to these big moves, there are a few other smaller items you may want to take care of before the end of the year:
- Donate to charity to maximize itemized deductions.
- Make a tax efficient withdrawal from your retirement account if you are over age 59½.
- Take advantage of the annual $15,000 gift-giving limit.
If you need any help evaluating which of these tips might apply to your situation or how to perform them, please give us a call.
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.