Save Money with This Year End Tax Strategy
Do you want to save money with a unique year-end tax strategy? Year-end is rapidly approaching and you only have a couple of months to utilize tax-saving strategies. The Tax Cuts and Jobs Act of 2017 substantially increased the standard deduction and made changes that affect itemized deductions.
What is Tax Bunching?
A year end tax strategy called Bunching could make the difference in your tax filing this year. When you expect your deductions to be bit more or less than the standard deduction, consider prepaying certain expenses this year that you’d normally pay next year. You’ll be able to claim itemized deductions this year and you can use the Standard deduction next year. This technique is what tax preparers call Bunching.
For instance, to boost the amount of your federal itemized deductions this year, you can prepay tax-deductible taxes and next year’s charitable obligations. Keep in mind, however, that the Act limits the deduction for state and local income or sales taxes, along with property taxes, to $10,000 per year. So be careful not to prepay more taxes than will be deductible in a year.
Other Year-End Tax Strategy Options
Here are some other year-end steps you should consider taking:
Making deductible retirement plan contributions
When you are elible to do so. Consider making deductible retirement plan contributions. You should know that some contributions have increased. Such as the 401k, 403b, most 457 plans, and the federal government’s Thrift Savings Plan. Below is a graph put out by 401K Help Center, an online resource.
Sell Losing Stocks for a Potential Deductible Loss
Here is how it works. Once you sell the stock, the IRS allows you to report the loss to make up other stock gains. This selling off of stock allows you to claim a deduction. Note there are other forms you will need to fill out when you take a stock loss in addition to the tax return you file. We just want you to be aware that when you record a loss, it helps to offset other income on your tax return, which in turn lowers your income taxes.
Prepaying Certain College Tuition
This year end tax strategy will maximize the eduction credits. These education expenses, such as tuition and fees, must be for the purpose of the student to attend the college or university. Read more about Tax Credits for Education on the IRS website.
Ask Your Employer to Hold Off Your Bonus Until Next Year
I know what you are thinking, you’re saying, “What are you crazy!” I’m very serious. Seeing if your employer will defer your year-end bonus to next year, providing your income next year will be less than this year, is a good year end tax strategy. It makes your income more steady, and it could be the difference between one tax bracket versus another.
Do you need to discuss some year end tax strategies?
These are only some examples of year-end strategies that may reduce your taxes. Would you like to discuss some tax-planning? Why not set up an appointment with Alex Franch, BS EA a call at 781.849.7200 or email us at email@example.com. You may also make an appointment at any one of our locations in Dedham, Weymouth, and Norwell to develop a tax planning strategy.
Alex Franch, BS EA
Alex is a Tax Specialist and Partner at Joseph Cahill & Associates / WorthTax. He has a diverse background including a Bachelor of Science from Boston College in Mathematics and extensive military service. Alex is an Enrolled Agent and has a decade of tax preparation experience. He is passionate about serving businesses with tax and financial planning
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