Year-End Tax Tips
Act now to save on taxes this year.
Elizabeth Carlassare
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Year-End Tax Tips
Today’s topic is year-end tax planning.
The end of the year will be here soon and you have until December 31 to take action to pay as little as possible in taxes to Uncle Sam.
Here are a few tips about things you can do before the year is out to reduce your tax bill.
Donate to Charity
Donate to CharityTip 1: If you want to donate to your favorite charity, do it before midnight on December 31. Now, saving on taxes isn’t a good enough reason in and of itself to donate to charity. But if there’s a cause you want to support, go ahead and donate before the end of the year to reap the tax benefit this year. If you itemize deductions on Schedule A, you’ll save on taxes by donating to charity. If you’re in the 25% tax bracket, for example, you’ll save a quarter for every dollar you donate.
And remember that you can donate stuff as well as money to charity to get the tax break. This is the time of year that I like to go through my closets and get rid of things I no longer need. I get the benefit of a tax deduction and I get to make way for starting off a new year with less clutter.
Pay Your January Mortgage Payment in December
Tip 2: Consider paying your January mortgage payment in December. It will mean a bigger mortgage interest deduction for you this year. If you can easily afford to do it, also consider paying your property taxes for next year before this December 31. You get to deduct them in the year you pay them.
Offset Your Gains With Losses
Tip 3: Offset your capital gains with losses. If you have capital gains, take a look at your portfolio and see if there are some losers that you want to sell. You can use the loss to reduce or even eliminate the amount you owe in capital gains tax. If you have more losses than gains, you can use up to $3,000 of the excess losses to reduce your taxable income. And remember, you can minimize capital gains tax by holding stocks, mutual funds, or other assets for at least a year. The long-term capital gains rate of 15% applies to assets held longer than a year. Short-term capital gains are taxed at your ordinary income tax rate.
Get Strategic about Gifting Money
Tip 4: If you plan to gift more than $12,000 to someone next year, you can avoid gift tax by spreading the amount over multiple years. For example, if you plan to contribute $20,000 toward a down payment to help your child buy a house next year, you can avoid gift tax by gifting them, say, $10,000 this year and $10,000 next year. Gifts under $12,000 are not subject to gift tax.
And here’s one last tip: if you have tax-deductible expenses such as business or medical expenses that you’d like to deduct in this tax year, but you don’t want to pay for them until next year, you can put them on your credit card before the end of the year. The IRS considers an expense deductible when it’s charged, not when you pay your credit card bill.