Can you believe that the year is almost over? Even with the holidays quickly approaching and 2017 coming to a close, the good news is that there is still time to reduce your tax liability for this year. You just need to act fast.
Though you only have a few months left before 2018 begins, now is the perfect time to boost your tax efficiency and save yourself some cash come April 15.
Here are 10 smart tax moves that you absolutely don’t want to miss out on before the end of the year:
1. Give to Charity
Do you itemize your deductions and are you trying to bring down your taxable income a little bit? You can accomplish your goal and help a worthy cause by donating to charity.
Whether it’s tithing for your IRS-recognized religious congregation or giving a cash donation to the local food bank, it’s possible to receive a tax deduction for your generosity. You will need a receipt in order to take the deduction, so don’t forget to ask for one.
You can also donate items in good condition to charity. Itemize what you have, figure out the current market value, and take it to the local charity thrift shop. Ask for a receipt in the amount of the value of your goods, and you can deduct the total from your income.
You can also deduct mileage (at $0.14 per mile for the standard mileage rate) if you drive your car on behalf of charity.
In order to take the charitable contribution, you need to itemize your deductions using Schedule A.
Learn More: Valuing Non-Cash Donations for Taxes
2. Report Investment Losses
Do you have some losing investments this year?
If you have assets that have lost value, now is a good time to sell — as long as you have a good reason to believe that the fundamentals have changed. If you are rebalancing your portfolio, or if you want to unload some fundamentally-unsound losers, you can sell at a loss.
First of all, your capital losses can offset any capital gains you realized this year. After that, if you still have losses left over, you can use up to $3,000 of that to offset other income.
If you still have losses, you can carry forward any amount over $3,000, to be used to offset income or gains in another year.
Capital losses can be carried forward indefinitely, so be sure to keep good records.
3. Max Out Retirement Account Contributions
If you contribute to a non-Roth qualified retirement account, you can enjoy a tax deduction.
A tax-deferred investment grows more efficiently over time. So, not only are you getting a tax deduction on the money you save, but you are contributing to your future comfort in retirement.
Make sure you stay up-to-date on the IRS contribution limits for the account you choose. Also realize that there are phase-outs associated with the amount of your contribution that you can deduct for some accounts (notably with IRA accounts).
Resource: Current 401k and IRA Contribution Limits
Both an IRA and a Solo 401(k) allow you to make contributions for this year up until April 15 of next year, so keep that in mind as you prepare your taxes. You might be able to squeeze in one more contribution if it makes sense for you, tax-wise.
If you plan to open an IRA, here is a list of brokers that offer IRA accounts.
4. Boost Health Savings Account Contributions
Do you have a high deductible health care plan? If so, you might be eligible for a Health Savings Account, or HSA.
Your HSA is your money, and it rolls over from year to year. You will receive a tax deduction for your contributions. Plus, the money grows tax-free as long as you use your withdrawals for qualified health care expenses.
Check the retirement contribution limits with the IRS. The good news is that you can contribute more to your HSA than you can contribute to an IRA.
This is a great way to save for the future, because you can use the money for health care costs at any stage of life. If you withdraw money for non-qualified expenses, the rules are the same as for a traditional IRA. And, as with a traditional IRA, you can contribute to your HSA until April 15 following the year that just ended.
5. Double Down on Business Deductions
If you own a business, and you have been planning on making some purchases, now is a good time to fit them in.
Your business deductions can offset your business income, as well as any other income you might have to report. Business deductions include office supplies and equipment, business-related travel, the business use of your home, subscriptions to trade publications, and advertising costs, among others.
6. Defer Your Income
If you are teetering on the edge of the next-highest tax bracket, deferring some of your income might be a great way to save yourself some cash this year.
This one is fairly simple: it just involves holding off on accepting certain monies until after the first of the year.
If you know your boss gives out a hefty raise each Christmas, ask him to defer it to your first paycheck of 2018. Self-employed? Then it’s even easier. Instead of sending those invoices from the end of the year, wait until January 1st.
If you’ve thought about selling off investments or a home, which would result in a capital gain, wait until January to do so.
All of these things — combined with contributing the maximum to tax-advantaged retirement accounts, as mentioned earlier — will lower your taxable income and save you come April.
7. Make Big Business Moves
In order to claim business expenses as a deduction, they need to equal 2% or more of your AGI, or Adjusted Gross Income. These can include home office expenses, unreimbursed employee expenses, licensing fees for your job, passports for a business trip, and a slew of other things.
If you want to reach that 2% threshold and are already close, you could make a few extra purchases this year. By combining some of this year’s expenses with some that would have been paid out next year, you can claim the deduction for 2017. Otherwise, by spreading it all out, you run the risk of losing the deduction for both years.
You could simply remodel that home office (assuming it’s used regularly and exclusively for work), like you’ve been meaning to do for years now. You could prepay for that work-related continuing education course or your malpractice insurance for next year. You could buy new tools or pay union dues.
There are probably a few extra purchases you could make in order to bump up your expenses for this year. That will not only save you on this year’s tax bill, but you won’t have to worry about those expenses come 2018!
8. Bunch Up Medical Deductions
This is in the same thread as number 7, but you should also think about ganging up your medical expenses now to snag tax benefits.
In order to claim a deduction for medical and dental expenses, they must exceed 10% of your AGI. For most of us with everyday medical bills, this isn’t enough to enjoy the tax benefits. However, you may be able to “bunch” your expenses to take advantage of the deduction.
If you have planned procedures for 2018, it may be worth the tax benefits to prepay for them now, rather than waiting until next year. This is especially true if you have a fair amount of medical expenses this year already, and next year would put you at or above that 10% AGI mark.
For example, you could pay for your kids’ braces up front, if you have the cash-on-hand, even if they won’t get them put on until after the new year. Do you get regular chiropractic adjustments, acupuncture, or physical therapy? See about paying for the next six or 12 months’ worth of visits now.
Order contact lenses in bulk, buy the kids new glasses, sneak in those annual exams, or prepay for the LASIK you want to get in the spring.
Be sure to calculate your current medical and dental expenses, though, to ensure that you can meet the minimum AGI threshold for deduction. Otherwise, you might drain your savings to prepay for a bunch of services, and still not get the tax break.
9. Prepay Tuition
On another similar note, you could prepay for spring or summer college tuition expenses, in order to take advantage of the Lifetime Learning Credit or American Opportunity Credit. Both of these combined can snag you a whopping $4,500 in credits for this tax year.
10. Bonus Tip: Use That FSA!
This one is less of a “deduction,” and more of a “save your money before you lose it” tip.
If you have an FSA, or Flexible Spending Account, you are probably aware that they need to be used or you’ll lose those funds. Depending on your employer, you may be able to carry over up to $500 to the next year, or even have a grace period of up to 3 months in order to use those funds in 2018. (Be sure to check whether either of these apply to you — you could potentially lose the total balance come Jan 1!)
However, if you just leave a bunch of money sitting in the account above and beyond that, it will be wasted. And that will probably be a lot more painful than the extra charity deductions you could have snagged.
Be sure to consult with a tax professional. Just because we’re approaching the end of the year, doesn’t mean it’s too late. Spend a little extra money now, and you could save on taxes in the new year.