4 End-of-Year Money Moves That Can Benefit Your Taxes
December is the time of year to reflect on your personal and professional goals of the past 12 months, and make resolutions. But don’t forget to look ahead financially. The actions you take in the next couple of weeks can save you a good chunk of change in 2017. Consider these four money moves before you ring in the new year.
1. Flex those spending muscles
If you have a Flexible Spending Account (FSA) with a savings stockpile, you could very well be facing a “use it or lose it” situation. Find out if you’re entitled to a grace period or a carry-over of up to $500 (you’ll get one option or the other, but not both). Act quickly so you benefit as much of it as possible.
2. Top off your 401(k)
How much have you contributed to your employer-based retirement account this year? If you’re under age 50, you can contribute a maximum of $18,000; those over 50 can contribute an additional $6,000. Remember, whatever amount you put into your 401(k) will reduce your taxable income, meaning that’s less you’ll owe Uncle Sam.
Related: Your One-Minute End-of-Year Debt Payoff Checklist
3. Think like Trump.
Don’t worry, this has nothing to do with politics, but many pundits predict that the president-elect and the Republican Congress will cut income taxes next year. That would mean both lower tax rates and higher standard deductions on 2017 returns, depending on the size of your household and some other factors. Maneuvering now to defer income to next year and accelerate deductions for this year can save you some bucks.
4. Cut your losses
To better put it into investment terms, harvest your losses. There’s no telling what will happen to capital gain tax rates in the coming year, which is why it’s best to focus on the present. Take any unrealized capital losses to offset capital gains; up to $3,000 in losses can be applied to reduce ordinary income. This tactic only applies to taxable accounts, so it won’t work for IRA or 401(k) investments.
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Remember, everyone’s financial and tax situation is unique, so consult with your tax advisor before you make any of these year-end money moves. Cheers to a financially rewarding new year!
Any questions? Ask them here, or provide your own year-end tips.
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