Important Year-End Tax Tips to Consider Before the New Year

At the end of every year, it's important to take a few moments and review your taxes. From understanding deductions to filing for an extension, paying attention to details now can help you save time (and money) when engaging with your finances and tax returns.

The New Year presents many opportunities, so let’s get ahead of the game and ensure you have everything sorted out before December 31st arrives. To aid you on this journey, here are some essential tips and reminders on what should be considered when dealing with your taxes at year's end.

Check Your Tax Withholding

One of the most important tasks you should undertake before the end of the year is to ensure that your tax withholding is correct. Ensure that your employer withholds the correct amount from each paycheck and matches what should be paid based on your annual income. If there’s a discrepancy, adjust it before it’s too late.

Maximize Tax Deductions

When filing for taxes, understanding which deductions are available can save you time and money. The standard deduction for 2019 was raised to $12,200 for single filers and $24,400 for married couples filing jointly.

Additionally, various other deductions exist, such as medical expenses, donations made to charity, student loan interest payments, etc. Before the end of the year, it’s important to review your expenses and maximize any potential deductions you are eligible for.

Consult a tax professional if you have any questions or need guidance on how to claim them. Additionally, spend time researching which deductions may apply to your specific situation - doing so can help reduce the taxable income you report at year's end and ultimately save money. Finally, make sure to keep complete records of all deductions claimed.

Maximize Your Retirement Contributions

Maximizing your retirement savings can be a great way to ensure you’re financially secure. It also provides some tax benefits. Many employers offer 401(k) or 403(b) plans as well as other types of retirement accounts, such as Individual Retirement Accounts (IRAs).

The amount an individual can contribute is based on their salary and other factors, but for 2019, up to $19,000 was allowed for 401(k) contributions. Contributions are pretax and only subject to taxes once withdrawn from the account. Many employers offer matching contributions, which can help boost retirement savings even more.

Before the end of the year, it’s important to consider maxing out your contribution limit if possible. Doing so can significantly reduce your taxable income and provide the security of knowing you have retirement savings set aside for the future. As always, speaking with a financial advisor before making decisions regarding retirement accounts or contributions is important.

Self-Employed Retirement Plans

Self-employed retirement plans can be an excellent way for self-employed individuals to save for their future. These plans are designed to help self-employed workers save money while providing them with tax advantages when it comes time to file taxes.

There are many different types of self-employed retirement plans, such as the Simplified Employee Pension (SEP), the Individual Retirement Account (IRA), and the Solo 401(k).

Each plan offers advantages and features, such as higher contribution limits than traditional pension or IRA accounts. Self-employed individuals should carefully consider each type of plan before deciding which is best for their situation.

They may want to consult a financial advisor who can offer guidance on saving strategies to maximize their savings and provide the most tax benefit.

Open an HSA

Health Savings Accounts (HSAs) are a great way to save for medical expenses not covered by insurance. HSAs are tax-advantaged accounts that can be used to pay for qualified medical costs. Contributions to an HSA are pre-tax, and earnings on the account grow tax-free.

This makes them a great option for those looking to save money while still having access to funds when needed for medical expenses. When you open an HSA, you get control of your savings with no restrictions on how or where you use the money in the account.

You also can transfer funds from your checking account into your HSA whenever necessary, which is helpful when life throws surprises at you. Lastly, because an HSA is a long-term savings account, the money you contribute will accumulate over time and can be used for future medical expenses.

Opening an HSA is a great way to save for medical expenses while also having control of your money. Doing so can provide much-needed peace of mind knowing that funds are readily available if needed in the future.

Because contributions to an HSA are pre-tax, you can reduce your taxable income and save more money. Ultimately, HSAs are a great option for those looking to save money and prepare for unexpected medical costs.

Consider Your Charitable Donations

Making charitable donations before the end of the year is another great way to reduce taxable income and save money. Charitable contributions are tax-deductible, meaning any donations you make can be deducted from your taxes when filing.

If you itemize deductions on your tax return, you can deduct up to 50% of your adjusted gross income (AGI). Additionally, if you donate non-cash items such as clothing or furniture, those donations also may be deductible. It’s important to keep records of all charitable donations to claim a deduction when filing taxes.

Take Advantage of Tax-Loss Harvesting

Tax-loss harvesting is a strategy for reducing taxes by strategically selling investments at a loss to offset capital gains. For example, if you have $10,000 in stocks and $15,000 in bonds that have increased in value since purchase, you can sell the stocks to offset the gain on the bond sale and reduce your taxable income.

This strategy must be done before the end of the year to ensure it can be used on your tax return. Speak with a financial advisor or tax expert to understand how to utilize this tool for maximum benefit.

Conduct A Roth IRA Conversion

Conducting a Roth IRA conversion can be an effective way to save money on taxes. Converting from a traditional IRA to a Roth IRA allows you to pay taxes now at your current tax rate rather than later when you withdraw funds in retirement.

Withdrawals from the account after age 59 ½ are tax-free and are not subject to income or Social Security taxes. Additionally, any investments in the Roth IRA grow tax-free over time, providing additional savings. Before doing a conversion, please speak with your financial advisor or tax professional about how it may impact your situation.

FAQS

What is the year-end tax planning?

Year-end tax planning is reviewing your financial situation and making changes to reduce taxes before the end of the year. It involves assessing income, deductions, investments, and other factors that can impact your overall tax liability.

How does year-end tax planning suit me?

Year-end tax planning benefits anyone who wants to save money on taxes. It’s important to review your financial situation before the end of the year and consider making changes that can reduce your taxable income or provide additional tax savings.

What factors affect taxable income?

Several factors can affect taxable income, including wages, business income, capital gains and losses, investment income, deductions, credits, etc. Considering all of these factors is important when planning for year-end taxes.

Conclusion

The end of the year is fast approaching, so now is a great time to look into important year-end tax tips. Strategizing your tax beforehand makes filing taxes much easier and less stressful. It’s also a great way to save money and possibly even get some money back from the government that you would not have otherwise. Please speak with a qualified financial professional about any specific questions or concerns, as they can provide further guidance on how these tips may affect your situation.