Year End Solutions
Before the year ends, here are a few things to consider:
1. Synchronize your gains with your losses. If you sold stocks or mutual funds at a gain during the year and are sitting on losses, a sale before year-end will offset the gain. What is more, if your loss positions exceed your gains, as much as $3,000 of net capital losses can be taken as a deduction against ordinary income. This will also work if you have made no trades but have paper losses you can take. Capital losses exceeding $3,000 can be carried forward to next year’s taxes.
2. Make a Donation. Charitable contributions made to qualified organizations may help lower your tax bill.
3. Make a Contribution. Add more to your 401k or open a new retirement savings account. To lower your tax bill, you may want to boost your 401(k) contributions, but it is important to make sure you don't go over the limit.
4. Pay off those deductible expenses before year's end. If you pay off your state taxes or property taxes early, that accelerates your federal deductions. You can make an extra mortgage payment (the interest is deductible), or go for that dental work before year's end.
5. Meet with your accountant. Your account knows you financial situation and can best advise you as to how to maximize your deductions to minimize your tax consequences. Tax preparation is a year long process so before you get ready for the holidays, take some time to make sure you're doing everything you can do this year to minimize your tax exposure come next April 15th.
6. Lastly, take this time to get organized. Put together a financial binder with your important papers. Include the locations of important documents such as a wills, safe deposit box locations, bank accounts, etc. and make sure loved ones know how where it is in case anything should happen to you.