As the year winds down, you might be focused on the holidays, not on your taxes. After all, you have until mid April to worry about the IRS – right? Wrong. Although you don’t need to file your individual tax returns for months, time is running out to get your 2017 tax situation in order. Get the best refund you can next year by taking steps before this year ends.
Invest in your retirement plans.
For 2017, the 401(k) contribution limit is $18,000. Employees aged 50 or older have an additional catch-up contribution limit of $6,000. If you haven’t maxed out your contributions yet, consider contributing more before the year ends. Because 401(k) contributions aren’t taxed, this will reduce your taxable income for the year. It will also bring you closer to your retirement planning goals.
The 2017 IRA contribution limit is $5,500 or $6,500 for people aged 50 or older. Traditional IRA contributions are fully or partially tax deductible in some situations. If you don’t have an IRA, consider opening one before the year ends.
Delaying income is a helpful strategy if the income would push you into a higher tax bracket. This method works especially well for the self-employed, who can delay sending invoices until January, or for investors with capital gains.
Keep in mind that this strategy will make your income that much higher for the 2018 tax year.
Harvest your losses.
If some of your investments have experienced losses, you might consider selling these investments. The capital losses can then be used to offset your capital gains and other forms of income.
When deducting capital losses, you can deduct the amount of your capital gains plus $3,000. For people who are married and filing separately, it’s the amount of your capital gains plus $1,500. Note that the IRS does not allow this deduction if the sale was to a relative.
Donate to charity.
‘Tis the season to be generous – and it’s also a great way to increase your 2017 tax deductions. There are many worthy non-profits. Find one you care about and make a donation. There are many ways to donate. You can write a check, but you can also donate items. If you have an old car, for example, consider donating instead of trying to sell it. It can be less of a hassle, and you get the tax write-off. You can donate other items, too, including clothes, books and furniture, so clean out your house, be generous and improve your tax situation all in one fell swoop. Just make sure you get a receipt showing the fair market value.
If you need advice or assistance, our Financial Services team is here to help!