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These Year End Tax Strategies Could Help You Save Money

Thu, Dec 20, 2018 - 9:51am

It's easy to let things slip as we enter the holiday season. Everybody's thinking about office Christmas parties, family get-togethers and warm weather vacations. However, it’s important to consider these year-end tax moves as they could end up saving you money.  

Make sure that you are making your 401 (k) contributions to a pension plan or IRA. A good example is if you've been contributing at a regular amount— the amount can put in a 401 (k) is $18,500—however if you turn 50 this year you’ll get a little over $5,500. So, if you're not aware of that you’ll want to take advantage of it. Say your company gives out year-end Christmas bonuses… this might be a great way to put that money aside and get a tax deduction. If you do get that big bonus you might want to check with your HR department to see if you qualify for any kind of deferred compensation program or extra pension contributions.

If you are taking distribution from an IRA, and you really don't need the money, you can make a qualified charitable distribution from your IRA directly to a charity and don’t have to worry about itemized deductions. There’s some good news if you are self-employed and not using a pension plan. If you get the paperwork in you can set up the pension plan this year, and you have until you file your tax returns to fund it.

If you are funding and making any gifts to your children or grandchildren, which you can do annually, or let's say you want to fund a 529 plan for college, now is the time to do it. Get it in this year, because you can then do it again next year.

If you've been fortunate to have large capital gains, especially if you're invested in mutual funds, as you're aware in the month of October and November so if the mutual fund that you've invested in has taken any capital gains during the year, they’ll distribute that to you at year end.

Given what's happened to the market, if you have large capital gains and you have something in your portfolio what you might want to do what is called tax laws harvesting and offset those gains with capital losses.

If you’re turning 70 ½ this year or you’re over 70 ½, be sure you take your required minimum distributions by the end of the year. The reason I bring this up is many of you have multiple IRAs out there and you really need to take a look at all of those IRAs added together when you compute that minimum distribution. If you fall short of taking the minimum you're going to pay a 50 percent tax penalty on the amount that you didn't takeout. They're going to wallop you for it. So that’s one of the reasons we always recommend consolidating your IRAs into one account. It just makes so much more sense to do that than to have accounts all over the place and it's easy to forget about an IRA that you have some place and you're not thinking about. 

Another big one for the year is to make sure you’ve paid in enough on taxes to avoid penalties. You can either pay 90 percent of this year's or 100 percent of last year and you're going to avoid that penalty because it's about a half a percent for under withholding.

These are just some of the basics that you’ll want to make sure you’ve looked at by year-end. They’re all important to consider as this holiday season gets into full swing and you’d be surprised how frequently they’re overlooked this time of year.

Don't miss out on our two-part series on charitable giving! To find out more about Financial Sense® Wealth Management and our investment services, click here to contact us.

Advisory services offered through Financial Sense® Advisors, Inc., a registered investment adviser. Securities offered through Financial Sense® Securities, Inc., Member FINRA/SIPC. DBA Financial Sense® Wealth Management.

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