The end of the year is only a short time away. While you are making all of your holiday plans to see friends and relatives, you should also be planning for your taxes. Now is the perfect time to lower your tax obligations so you can get more savings when filing your return. Take advantage of these 4 things you can do before the tax clock winds down at the end of the year.
Get Itemized Deductions in Order
If you are retiring soon, then taking as many deductions as you can now will help lower your taxes. Gather up all of your receipts and write out a list of your miscellaneous deductions. Then check with the IRS to see which ones can be deducted and if these deductions are greater than the two-percent limit of your adjusted gross income (AGI).
Contribute More to Your Retirement Plan
If you haven’t reached the maximum contribution limit, then place extra funds into your employee-sponsored IRA or 401K plan. Your contributions won’t be taxed. You can report less income on your returns as this adds up to more savings — and more money — when you retire.
Review Your Portfolio for Capital Losses
Having assets that have lost value on your portfolio is never a good thing to deal with, yet you can use the losses to be an offset for assets that have gained in value. If there are more capital losses than capital gains on your portfolio, you will be able to lower your income amount by up to $3,000. If you experienced higher losses, you can carry over them over to the following tax year. This strategy is very helpful if you are subject to the Net Investment income tax.
Think About Getting a Roth IRA
Unlike a 401K plan where you are taxed when making a withdrawal, there are no withdrawal taxes to a Roth IRA. So converting from a traditional IRA to a Roth IRA is ideal if you think you will see a higher tax rate in the near future. While you have to expect traditional IRA taxes on earnings and pretax contributions during the conversion year, the penalty-free and tax-free benefits of a Roth IRA are something to look forward to during your retirement years.
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Your Guide to Financial Independence
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