This time of the year is a great time to take a look at tax strategies that may save you money for the current year. You should also take time to plan strategies for the upcoming year that will help you build your net worth.
Here are a few strategies worth considering:
1) Make additional contributions to your 401k – If you haven’t maxed out your
401k contributions for the year, consider making an additional contribution before the year ends. The maximum contribution for 2016 is $18,000. If you are age 50 or over you are allowed an additional $6,000 catch-up contribution (irs.gov).
2) Make a charitable contribution – If you itemize deductions, you will be allowed to count donations to qualified charitable organizations. The IRS has a webpage with information on charitable organizations. The website is https://www.irs.gov/charities-non-profits/exempt-organizations-select-check.
There are links to other pages that help you determine whether or not an organization is an exempt organizations in which chartable contributions are tax deductible. Remember that charitable contributions can also be non-cash such as clothing, household items, automobiles, stocks, land, etc. If you happen to be moving in a few months, consider donating items you no longer use to a charitable organization and receive a deduction on your tax return.
3) Consider capital losses to offset capital gains – The end of the year is a good time to take any capital losses on stocks that have lost value. You might only want to do this in order to offset any capital gains you have for the year. Speak with your financial advisor if you have any questions as to the timing of capital losses.
4) Make your January mortgage payment in December – Once again, if you itemize deductions on your tax return, you will be allowed to count any mortgage interest you pay. If you make your January mortgage payment by December 31, any interest paid will be tax deductible for you. Any additional property tax you paid will also be deductible.
5) Pay the Spring semester college tuition in December – Pay the tuition early to be allowed the deduction in the current year if you fall within the limits. Take advantage of the American Opportunity Tax Credit (AOTC). The AOTC expanded the tuition credit to more individuals. For more information, go to:
https://www.irs.gov/uac/american-opportunity-tax-credit. The annual maximum limit is $2,500.
With just a bit of planning, you can reap benefits on your tax return. Take advantage of any deductions available to lower your tax liability for the year. You can even help yourself while helping others with charitable donations. End the year financially strong and be prepared to start the New Year the same way!