It’s the end of year and we’ve been talking about preparing for next year’s taxes. In addition to making sure your paperwork is in order, and your transactions have been documented, there tax provisions you can take to minimize your tax liability. Perhaps the foremost among them is contribute to a tax-advantaged savings plan. Contributing to a 401(k) or an IRA is the one of the single most intelligent thing a person can do to manage their finances. Not only does this reduce your taxable income for the year, but it also allows your potential earnings to grow on a tax-deferred bases. It also contributes to your retirement; so, it’s a good move. You must make your contributions by the 31st and your contribution limit is $17,500 or $23,000 for people age 50 and older. With an IRA account you have until April 15 of next year to make a tax deduction for this year of up to $5,500 or $6,500 if your age 50 or older. Other tax-advantaged plans might include a Simplified Employee Pension plan, or a Health Savings account. Contributions for both can be made until April 15 of next year and still apply to this year. To better understand how your specific spending and saving goals affect your tax liability, speak to a tax attorney.
This is also a good time to adjust your withholding. Your tax withholding should be as close as possible to your tax liability. Too much withholding and you are giving the IRS an interest free loan. Too little and you could be hit with a huge tax bill. Talk to a tax lawyer about how best to reach your targets for the current year.
Another popular strategy is to “harvest” your investment losses. Sell losing investments that are not working and use them to offset capital gains taxes on investments that are performing well. Talk to a tax attorney about this strategy since special rules for handling investments may apply. In general, you should be aware of deduction limitations. For high earners special rules for the limits of your deductions come in to play and many deductions are disallowed under the alternative minimum tax. Nor do special actions need to be taken if you are merely planning to take the standard deduction.
Be sure to sign up for healthcare if it is not already provided for you. You do not want to be hit with fees or penalties.
For more information about how your tax attorney can help you please contact us at 913-735-4829