Southern Utah News Articles
Year end tax planning
Planning for year-end can be your last chance to significantly reduce your taxes and put a lot of money in your taxes. Here are some significant steps you should consider that can really take a bit out of what you would owe Uncle Sam.
1. Probably the biggest step of all is to get an expense/tax tracker such as Taxbot, a top rated expense tracker by top 10 reviews. A tax tracker provides all of the tax information the IRS requires for entertainment, mileage, travel etc. It could really bullet-proof you from even the smartest IRS or state tax examiner. This becomes particularly important if you have a business or must account to your employer for expenses or for mileage reimbursement
2. If you have made charitable contributions of $250 or more, make sure you get an acknowledgment from the charity of your contribution or you will get no deduction.
3. Double check that you have receipts for all potential deductions.
4. Harvest losses: This is a perennial strategy recommended by top CPAs. It involves selling any stocks, bonds, mutual fund shares estate that would produce a loss. You can use that loss against any capital gains. You can even buy the same stocks back, as long as you wait at least 31 days from when you sold the securities at a gain.
5. Double pay certain deductions: Consider prepaying state income tax you might conceivable owe. The same principle applies to charitable contributions such as tithing. Consider double paying for both this year and next year. Always get an acknowledgment from the charity too.
6. Consider donating property that has gone up in value: If you donate a painting or stock that has appreciated and has been owned by you for at least one year, you can claim a charitable deduction for the fair market value of the item donated. If you donate property, such as a painting or antique, make sure you get an appraisal if it was worth $5,000 or more.
7. Consider deferring year-end bonuses and selling stocks at a gain till next year. This gives you an extra year to avoid paying tax on these gains.
8. Avoid estimated tax penalties by increasing your w-2 withholding: So, you didn’t pay in enough estimated taxes to avoid the estimated tax penalties. Simply, increase the amount withheld from your or your spouse’s paycheck. Withholding is treated the same way as making estimated tax payments except it is treated as having been made throughout the year regardless of when the withholding occurred. Neat trick, huh?
9. Make direct transfers from your company pension plan to your IRA: if you are retiring from your job, consider transferring the funds from the company 401K to your IRA. Make sure you do a trustee to trustee transfer in order to avoid being taxed on the money.
10. If you are age 50 or older, consider making a catch-up contribution to your retirement plan. The catch up contributions for IRAs is $1,000, for Simple IRAs, It is $2,500 and for 401Ks, it is $5,500.
11. If you have either a Health Savings Account or Medical Savings Account, make sure you max out the contribution. Also, if you are age 55 or older, you get to contribute an extra $1,000 per year. Note: no contribution is allowed once you are on Medicare.
12. If you are approaching ages 62 to age 66, consider the optimal time to take Social Security. Normally it is better to wait until you are age 70.
13. Open enrollment allows you to change prescription drug plans. Consider the best plan and particularly pay attention to the formulary allowed by the plan.
14. Do you have kids who might go to college in the future. Set up a prepaid tuition plan with your state of domicile and a section 529 plan with a financial firm or bank. The earlier you do this for your kids, the cheaper it will become. Bottom line, planning for next year can save you a bundle and make your life less taxing. Remember, an ounce of prevention and planning can save you pounds of stress and tons of money.
Sandy Botkin CPA, Esq is the author of “Lower Your Taxes: Big Time” and “Achieve Financial Freedom: Big Time.” He has been seen on Fox, CNBC and many other media outlets and is a lecturer on tax and financial planning with his company, “Tax Reduction Institute.”