The end of the year is fast approaching and with it many important financial decisions that must be made. While most of us think of our finances in December in light of gift giving, it is also critical to think about your upcoming tax bill and what you can do before the end of the year to maximize your tax deductions?
Here are three actions to consider:
- Charitable contributions – The holidays and gift giving go hand-in-hand, so there is no better time to make a charitable contribution to a qualified organization. This is a win-win situation because not only does it benefit the charity directly, it also lowers your tax bill in the process. Consider giving items such as cash, clothing, and household items and be sure to ask for written acknowledgement from the charity for any donation greater than $250.
- Contribute to a 401k – While it’s always a good time to save for retirement, be sure to maximize your allowable contributions before the end of the year. Doing so pays you back in two ways. In the short-term, it lowers your taxable income, directly reducing the amount of taxes you owe. In the long-term it sets you up for a more prosperous retirement by increasing your savings. Remember, if your workplace doesn’t offer a 401k, you may qualify for a tax deduction on contributions to an IRA.
- Portfolio analysis – This December take the time to review your portfolio and make any necessary changes. Among them, consider selling any under-performing investments, as investment losses can be used to reduce your tax bill. First, you may offset capital gains against your losses. Second, deduct up to $3000 of what’s left against your income.