The end of the year is always a good time to take assess your tax situation and take action before the ball drops New Year’s Eve. Here are a few ideas to consider, but be sure to discuss these with your tax advisor before making any moves
Contribute the maximum to retirement accounts. While you typically have until April to make the contributions for the prior tax year, the sooner you make the contribution, the longer it has to grow! If you are contributing to a 401K, the maximum allowable contribution is $19,500 up to age 49 and $26,000 for those 50 and older. If you contribute to an IRA, it maxes out at $6,000 if you are under 50 and those over 50 can add an extra $1,000.
Rebalance your portfolio and sell loser investments to offset gains. Review your asset allocation and consider selling any stocks or mutual funds that have lost value to offset any taxable gains you have realized during the year. You can offset up to $3,000 in income or gains. Excess losses above $3,000 can be carried forward to offset gains in future years.
Make charitable contributions to support causes you are passionate about! Consider making your contributions in appreciated stock or property rather than cash or via a donor advised fun, which you can also fund with appreciated stock.
Maximize your Health Savings Account (HSA) and let it grow! Not just a year-end strategy, but good practice all year long is to contribute the maximum allowable amount to your HSA and leave the money in there! Once it reaches a certain amount (typically around $2,000), you can invest it in mutual funds. If you have money sitting in an HSA that hasn’t been invested yet, now is a good time to take that step so that it has the maximum amount of time to grow! Contributions, earnings and withdrawals for eligible healthcare expenses are all tax free. An HSA offers the greatest tax benefits – more than any other retirement account!
Deplete your Flexible Spending Account (FSA) if you have one. In addition to typical medical expenses, the money in this “use it or lose it” account can be used for a wide range of health-related procedures and expenses from contact lenses and solution to first-aid supplies to dental work.
Take your required minimum distribution (RMD) if you are age 72 or older. If you miss the deadline of December 31st, the penalty is 50% of the amount that should have been withdrawn and nobody likes penalties!
Give an annual gift. This year, you can gift up to $15,000 per person ($30,000 per couple given in separate gifts) to anyone without incurring gift taxes. As long as each gift doesn’t exceed $15,000, it doesn’t count against your lifetime estate tax exclusion. Spread the wealth!
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