Tax and Financial Planning Year-End Tips
With the end of the 2019 quickly approaching, the clock is ticking even louder on certain financial moves you may need to make before the end of the year. There are several tax strategies that may be worth exploring to save those extra tax dollars. Here are some opportunities to ponder before ringing in the new year:
- Charitable Contributions: Consider donating clothing, kitchenware or furniture you no longer need. Boosting your deductions at the same time as helping a worthy cause can feel like a win-win. TurboTax has a great tool that can help estimate the “fair market value” of your donated items. It’s important to note that you need receipt or written acknowledgement from an organization if you claim a donation of $250 or more.
- Retirement Contributions: 401(k), 403(b) or Thrift Savings Plans all allow pretax contributions that can reduce your tax bill by lowering your take home paycheck. It’s important to know that a portion of your employer’s plan may be Roth, which won’t lower your taxable income now but could be withdrawn tax free during your retirement years. Contact your Humans Resource department as soon as possible to find out what you are on track to contributing to your employer’s plan before year-end.
- 529 Contributions: While contributing money in a 529 plan won’t reduce your federal tax bill, it could help lower your state’s. Many states allow you to deduct a portion of your contributions from state income taxes. Many states require the contributions to be made to your own state’s plan, but a variety allow you to deduct contributions to any state’s plan.
- Capital Gains vs. Stock Losses: Mutual funds are required to pay out any proceeds from stock sales during the year to the shareholders in the form of capital gains. If you are hit with a distribution in your taxable accounts, a tax bill is likely to follow. One way to help lower those, is to consider selling under performing investments to generate a capital loss before the end of the year. This could potentially help offset the capital gains.
- Use It or Lose It: Flexible Spending Accounts, also known as flex plans, are a benefit offered by employers to allow employees to defer part of their pay into an account dedicated for child care or medical bills. The advantage of this account is that it avoids income and social security taxes. A part of the rule is that whatever you don’t use at the end of the year is lost. You should check with your employer to see if they have adopted a grace period that can allow the 2019 money to be set aside as late as March 15, 2020. If not, do what many do each year and book your last-minute dentist appointment or trip to the drug store before December 31st!
- Decide if Itemizing is Still for You: With the semi-new tax laws, standard deductions have increased. It also introduced a new deduction cap of $10,000 on property, state and local income tax deductions. It’s important to consult with your tax specialist to make sure you’re making the right choice.
While these are only a few of the late-year tax strategies worth pondering for the 2019 tax season. The end of the year is also a great time to focus on saving, investing, reviewing your workplace benefits and consulting with your financial professionals.
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