Now that the year is quickly drawing to a close, it’s time to double-check your tax strategy, and figure out if there are any last-minute tax moves you should be making.
Before you finalize your financial year, here are 4 questions to ask your tax professional:
1. Is Now the Time to Lock in Gains or Losses?
Have your tax professional look at your current situation and help you decide if you need to lock in gains or losses. If you will be in the 15 percent tax bracket or below that, you don’t have to pay taxes on your long-term capital gains. If you have been meaning to take profits on certain winners, now is the time to do it, while you don’t have to pay taxes on the gains.
On the other hand, if you are in a higher tax bracket, and you have realized gains from earlier in the year, it might be a good idea to sell some losers and use the losses to offset your gains. Your tax professional can help you run the numbers and look for the best strategy.
2. Should I Make More Contributions for Deductions?
You still have time to make more contributions for tax deductions. Find out if another few hundred dollars here are there could bump you down a tax bracket or result in other savings. More deductions might reduce your income enough to make you eligible for a tax credit with a phase out, or for some other benefit.
Ask about charitable contributions, making an extra mortgage payment (for the interest deduction), and retirement account contributions. If you can rustle up a few more deductions at the end of the year, you might be in a better position. Also, be aware that some contributions, like those made to an IRA or HSA, don’t have to be finalized until tax day. Prioritize your contributions, so that those that need to be made by December 31 are taken care of first.
3. How Should I Handle Year-End Bonuses?
You might have the chance to earn a little extra money this year, or to receive a year-end bonus. If you have a choice in the matter, it might make more sense to put off receiving end of the year income until after January 1. Look at what tax bracket you are likely to be in. If taking the money in this year will result in bumping you up, you might want to wait, especially if you foresee a lower tax bracket in the new year.
There’s not much you can do if you don’t get a choice, but if you do have an option, ask your tax professional what is likely to be most beneficial for you.
4. Do I Have to Make Certain Withdrawals?
If you are retired, you might need to make RMDs. Ask your tax professional if there are any withdrawals you are being forced to make. Also, review income that you might have received from other benefits plans (including private plans). You need to know which income is going to be required, and which income comes with tax requirements.
With a little extra effort, and a conversation with your tax professional, you can close out the year right.