As we approach the end of the year, it’s easy to become so wrapped up with the holidays that we forget to make smart financial moves. Still, tax season will be here before you know it. Here are ten tax tips to consider as you weigh potential tax moves between now and year-end.


10 Year-End Tax Tips


1. Set aside time to plan


Planning starts with having a good understanding of your current tax situation. You’ll also need to have a reasonable estimate of how your circumstances might change next year. For example, are you getting married or divorced? Are you having another child? Any career changes? Keep in mind that there could be a real opportunity for tax savings if you’ll be paying taxes at a lower rate in one year than in the other. However, the window for most tax-saving moves closes on December 31, so don’t procrastinate.


2. Defer income to next year


Consider opportunities to defer income to 2020, especially if you think you will be in a lower tax bracket next year. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rents, or payments for services. Doing so may enable you to postpone payment of tax on the income until next year.


3. Accelerate deductions


You might also look for opportunities to accelerate deductions into the current tax year. If you itemize deductions, making payments for deductible expenses such as medical expenses, qualifying interest, and state taxes before the end of the year (instead of paying them in early 2020) could make a difference on your 2019 return.


tax tips for year end

4. Factor in the AMT


If you’re subject to the alternative minimum tax (AMT), traditional year-end maneuvers could have a negative effect. Essentially a separate federal income tax system with its own rates and rules, the AMT effectively disallows several itemized deductions. For example, if you’re subject to the AMT in 2019, prepaying 2020 state and local taxes probably won’t help your 2019 tax situation, but could hurt your 2020 bottom line. Taking the time to determine whether you may be subject to the AMT before you make any year-end moves could help you avoid a costly mistake.


5. Bump up withholding to cover a tax shortfall


If it looks as though you’re going to owe federal income tax for the year, especially if you think you may be subject to an estimated tax penalty, consider increasing the withholdings on your W-4 for the remainder of the year to cover the shortfall. A big advantage of doing so is that withholding is considered paid evenly throughout the year instead of when the dollars are taken from your paycheck. This strategy can also be used to make up for low or missing quarterly estimated tax payments. With all the recent tax changes, it may be especially important to review your withholding in 2019.


6. Maximize retirement savings


Maximizing your retirement savings could benefit you today from a tax perspective but it also prepares you for a future of financial freedom. You can reduce your taxable income by making deductible contributions to a traditional IRA and pre-tax contributions to an employer-sponsored retirement plan such as a 401(k). If you haven’t the maximum amount allowed, consider doing so by year-end.


7. Take any required distributions


If you have an inherited IRA, make sure you know what the required minimum distribution is. Also, once you reach age 70½, you must start taking required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans (an exception may apply if you’re still working for the employer sponsoring the plan). Take any distributions by the date required — the end of the year for most individuals. The penalty for failing to do so is substantial: 50% of any amount that you failed to distribute as required.


8. Weigh year-end investment moves


You shouldn’t let tax considerations drive your investment decisions. However, it’s worth considering the tax implications of any year-end investment moves that you make. For example, if you have realized net capital gains from selling securities at a profit, you might avoid being taxed on some or all of those gains by selling losing positions. Any losses over and above the amount of your gains can be used to offset up to $3,000 of ordinary income ($1,500 if your filing status is married filing separately) or carried forward to reduce your taxes in future years.


investment basics

9. Beware the net investment income tax


Don’t forget to account for the 3.8% net investment income tax. This additional tax may apply to some or all of your net investment income if your modified adjusted gross income (AGI) exceeds $200,000 ($250,000 if married filing jointly, $125,000 if married filing separately, $200,000 if the head of household).


10. Get help if you need it


There’s a lot to think about when it comes to tax planning. That’s why it often makes sense to talk to a tax professional. She can evaluate your situation and help you determine if any year-end moves make sense for you.

If you need more comprehensive financial planning, contact me for a complimentary consultation.

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