By Madison, My Dollar Plan
Year end tax planning. Image from Erictyson.com
It’s time for end of year tax planning! Time to get your financial house in order for tax season! What could be more fun that taking a break from holiday festivities and shopping to start thinking about taxes?
It seems like every year when we do our taxes, there’s a few things we wish we would have done in December to reduce our tax bill just a little more. Sound familiar?
That’s where a little end of year tax planning results in great rewards!
Here’s an updated list of money moves to make before the new year.
Year End Tax Moves
1. Run a preview. Before the end of the year run an estimate using the tax calculator or Turbo Tax. If you wait until the new year, it’s often too late to go back and make changes. Start running projections now before the year end!
2. Bump up contributions to retirement plans. Contribute more to your 401k by the end of the year to reduce your taxable income and your tax bill.
3. Plan for health insurance changes. The new penalty for no health insurance in 2014 begins in January. To avoid the new penalty, you can sign up for Obamacare. In addition, the Health Insurance Premium Tax Credit, which is advanceable will also be available in January.
4. Take your losses. Did you lose money on your investments? If so, you might as well sell them and take the capital loss. Commonly referred to as tax loss harvesting, losses (that exceed gains) are capped at $3,000, but you can carry them forward into future tax years.
5. Take your gains. Once again, you can pay 0% long term capital gains if you are in the 10% or 15% tax bracket. If you are planning to sell, you might as well do it before year end if you fall in this tax bracket!
6. Review new investment tax rules. The new 3.8% 2013 Investment Tax on investment income, including capital gains and dividends, will kick in for high income filers. If you are subject to the new tax pay close attention to your end of year strategy to realize gains and losses.
7. Prepay your mortgage and real estate taxes. Even if your payments aren’t due until January, you can pay them in December to deduct this year, if you itemize. Should you pay this year or wait? For more information, see how to determine if you should accelerate your property tax deduction into the current year.
8. Give away your money. If you were planning to give a lot of money to someone special, utilize your annual gift exclusion of $14,000. More than that and you are subject to the gift tax.
9. Use your flex spending money. The use-it-or-lose it rule makes your money disappear if you don’t use it. Check your plan for the deadline to incur costs and submit reimbursement requests. If you don’t know what to spend your money on, see the list of ways to use all of your flex spending account. It’s also a good time to remember to enroll in your 2014 flexible spending account if you haven’t done so already. The $2,500 flex spending plan limit will remain the same for 2014.
Read the full article by Madison from My Dollar Plan.
