With that in mind, take a moment before year-end to review your current tax situation. There are always ways to lessen Uncle Sam’s bite.
Many of us can no longer itemize but it’s often possible to claim our deductions every other year by doubling up. It requires a sufficient cash flow but it’s possible to prepay January mortgage and home equity loans before year-end, thus increasing the amount of interest paid. Real estate and property taxes should also be paid before year-end in those jurisdictions where that’s possible. If you’re making estimated tax deposits to your state, pay the last installment, normally due in January, before year-end. Charitable gifts can also be prepaid. For instance, if you pledge an annual amount to a charitable organization, pay the amount due for the next year in the current year.
And it’s a good time to clean closets and donate castoffs to charitable organizations. Don’t sell yourself short on values; used goods are worth more than you think. An excellent resource is CA$H – For Your Used Clothing. You’ll save the cost of the book through tax deductions.
While you’re gifting to charities, you might also gift to family members or close associates. It won’t decrease the tax bill but it will decrease the estate taxes when that day comes. Each donor can give $10,000 annually to each donee without gift tax. This means a married couple could give to a child and his/her spouse, a total of $40,000 with no tax implications.
Miscellaneous Itemized Deductions are harder to achieve with the floor at 2% of your AGI (adjusted gross income) but, again, it’s possible to double up and get a deduction every other year. Prepaying professional expenses (licenses, dues, publications), employee business expenses not reimbursed by an employer, professional tax preparation, safe deposit box rentals and some investment expenses, may increase your miscellaneous deductions to above the 2% floor.
If the sale of stocks or redemption of mutual funds has produced significant capital gains, consider selling a known loss to offset the income. Even if your objective is to keep a failing stock because it pays excellent dividends, or you have faith it will eventually rebound, it can be sold before the 31st for a loss and then re-purchased after thirty days. The loss can be utilized against current income but you’ll regain the investment after the waiting period.
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