As the end of 2016 draws near, you may be wondering how you can boost your refund and finish the year off as financially savvy as possible, setting yourself up for a successful 2017. Well, you’re in luck. Every taxpayer can take advantage of our EOY tax tips below. And you might even be able to utilize all of them!
At year’s end, many a smart taxpayer adjusts their withholding status to match their taxable income. Doing this puts more money in your pocket per paycheck, rather than waiting for a larger check in the form of your refund. However, there’s no real financial gain as this money isn’t accruing interest, so why not get it now?
One tactic to a lower tax bill is accelerating deductions. For example, you can do spring cleaning early and donate to charity, and elevate the savings further by donating property. Another deduction to accelerate concerns your medical expenses – you can pre-pay for medical needs now to reach the threshold. Accelerating deductions might not produce the best benefit depending on the expense, however – in some cases, after weighing the benefits, exceptions, and liability, you may want to save them for next year.
Tax-deferred retirement accounts are a great investment. Try to increase your contribution before the year’s up; ideally you would max out the amount you are able to contribute ($18,000 or $24,000 if you are 50 or over), but pay as much as you can afford, so that your employer can match the payment (if you’re lucky enough to have an employee-sponsored 401k). Also consider contributing to an IRA in addition to or in place of a 401k. Making deductible contributions reduces your taxable income.
If year-end bonuses are a standard practice at your company, consider deferring the bonus until next year. If you are self-employed/a freelancer, you can delay billings until late December, so that your income can be counted for 2017. Only defer payments and bonuses if you will be in the same or lower tax bracket next year, of course.
“Loss harvesting” is a year-end practice by which you sell stocks and mutual funds to realize losses. You then use these losses to offset any taxable gains. Then, if your losses are more than your gains, you can take an additional $3,000 deduction. You can also carry over losses into future years, if this will serve you well.
Ready to tackle the end of the year in great financial footing? For some of these more complex tips, especially selling losing investments, we recommend consulting your tax preparer to ensure you’re taking the best route possible.
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