Reducing that year-end tax bite
The year’s end is just around the corner. This means you only have a little more time to look for tax saving opportunities for 2016.
Below is a list of some ways to help reduce that year-end tax bite. Of course, please consult with your CPA or tax professional as everyone’s tax situation is unique.
For those who itemize your deductions, advancing some early 2017 payments may make tax sense. This can be done by making your fourth, state estimated tax payment in December.
You may also make your January 2017 mortgage payment before year-end. This would increase your mortgage interest paid for 2016.
The same goes for charitable contribution deductions. If you were going to make non-cash charitable donations in January 2017 anyways, it may make sense to accelerate these payments before year-end to bump up that deduction.
Defer bonuses or other income
If you can pick the timing of your receipt of income, it is usually a better idea to defer income into the following year. If you are self-employed, think about deferring client invoices to be mailed out until Jan. 1.
If you are to receive a bonus from your employer, you may be able to defer receipt of this money until the new year as well. By doing so, you are effectively delaying the taxation on this money for another year.
Withholdings and Tax Payments
Paying the proper amount of tax in the appropriate time frame is important to minimizing underpayment and “failure to pay” penalties and/or interest on your tax return.
We already pay so much in taxes, let’s keep the avoidable costs to a minimum by adjusting your withholdings to pay in the bulk of your tax during the year or by making those quarterly estimates our tax preparers tell us to make.
Capital Gains and Losses
If you have investments you are considering selling in taxable accounts, look to sell the losers by the end of the year. Taking the loss now will allow you to write off the loss against other gains plus a maximum of $3,000 in capital losses per year.
However, if you want to cash in on a big winner or two, think about taking those gains post Dec. 31. Taxes are only one facet though. Make sure the timing and economics of the sale make sense to your investment strategy.