The end of the year will be here before you know it, and after that tax time will be right over the horizon. The steps you take now, before year-end, could have a profound impact on your tax bill when April rolls around. Time is running short, but you can still take steps to lower your tax bill and make the most of your financial future. Here are 10 last-minute moves you can make to slash your tax bill and get a jump start on the new year to come.
- Boost your 401(k) contributions for the remainder of the year (and the year to come). Increasing the amount you contribute during the last month of the year could reduce your tax bill substantially, and you still have time to make those changes. While you are at it, why not increase your 401(k) contributions for the year to come?
- Use your year-end bonus to add more to your retirement funds. If you are due a year-end bonus or other incentive, putting that money into your retirement accounts could lower your taxes, giving you a double benefit.
- Open (or add to) a health savings account. A health savings account (HSA) is one of the most tax-efficient vehicles the financial world has to offer, and you still have time to open a new one or add money to an existing one.
- Avoid capital gains taxes by gifting appreciated stock to your favorite charity. If your stocks have had a good year, you can avoid high capital gains taxes by donating those appreciated shares to your favorite charity. This year-end move is good for you and good for the cause.
- Make those last-minute charitable contributions. Even if you do not have appreciated stock to donate, you can still contribute to your chosen charity. Making those charitable contributions by the end of the year could lower your taxes and make you feel great.
- Calculate your required minimum distribution to avoid a significant tax penalty. If you are age 70-½ or older, failing to take the required minimum distribution (RMD) from your retirement plans could trigger a whopping 50% tax. So do the calculations and make sure you take the distribution before the end of the year.
- If you own a small business, push payments and reimbursements into the new year. For small business owners, the timing of collections and invoices matters, so ask your clients about delaying payments until the start of the new year.
- Save money on out-of-pocket expenses by using up the money in your FSA. A flexible savings account can provide tax savings and money for over-the-counter medications and out-of-pocket healthcare expenses, but you need to use those funds by the end of the year. Now is the time to stock up, so you can save money next year.
- Review tax law changes. The tax code is always changing, and now is the time to review those past-year revisions. From increases in the standard deduction to changes in the handling of retirement plan contributions, these new tax law provisions could have a profound impact on your tax bill.
- Do some advance work. You do not have to wait until the new year to start reviewing your taxes. If you have a few basic pieces of information, you can get a jump start on next year’s taxes. So grab your tax stub and your computer and start estimating your taxes.
They say nothing is certain but death and taxes, but that does not mean you have to pay more than you should. You still have time to lower your tax bill, but you need to act fast, before the current year comes to an end. The 10 timely moves listed here can reduce your tax obligation and help you build a more secure financial future for yourself and your family.