8 Important Year-End Tax Tips You Won't Want to Miss
It's hard to believe the end of 2018 is right around the corner! It's time to get your affairs in order with these 8 important year-end tax tips.
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Looking for the best year-end tax tips?
Want to make sure you save money on taxes in 2018?
If you don't know the best tax tips, it can be tricky to ensure you're not paying any more than you have to. New laws have brought a lot of changes to 2018 tax rules so it's especially important to be on the ball and to know exactly what you'll be dealing with.
Below we'll look at the most important year-end tax tips that you need to know about for the 2018 tax year.
1. Consider Deferring Your Income
Before you reach the end of the year, it's a great idea to look for ways to defer any income that you can. Income that comes in during the year will have to be paid come April.
If you want your tax bill to be a little bit smaller this year, you may want to consider asking your boss to defer your bonus. The bonus is usually the easiest thing for a company to defer for you and most will be happy to do it for you. Unfortunately, your salary may not be as easy to defer, especially if you work for someone else.
However, if you're self-employed and work as a freelancer or contractor, you may have some wiggle room. You should be able to defer a few incoming payments from clients a bit more easily, so you may want to consider doing it if you can.
2. Make Your Final Tax Deductions
Remember that the end of the year is your final chance to get any more tax deductions. In most cases, you should make sure you make whatever deductions you can before the year is over.
If you've been planning to give to charity, for example, the end of the year is the time to do it. However, remember that no matter what amount of money you make to a charitable donation that you need to have a receipt for it to count. Also remember that you also need to itemize your deductions to get any tax savings from charitable donations.
3. Be Wary of the Alternative Minimum Tax
While you're probably wanting to make some final deductions to reduce your taxable income, remember to proceed with caution. You will want to familiarize yourself with the Alternative Minimum Tax (AMT). The AMT is intended to make sure people aren't overusing specific tax deductions to lower your taxes excessively.
The AMT comes with different rules than your regular tax liability and will be calculated separately. It doesn't include certain itemized deductions. The AMT will give you problems if you make more money than the exemption and have a lot of specific itemized deductions.
You'll have to pay whichever one comes out to be higher in the end. Make sure you understand the rules and be prepared to pay higher taxes if your AMT calculations come out higher.
4. Sell Failing Investments
If you have any investments such as stocks or mutual funds that aren't performing well and that you've experienced capital losses on, it might be time to sell them. The end of the tax year is the perfect time to let some of these go.
Doing this can allow you to offset the capital gains you had from any winning investments since each dollar from your capital losses will wipe out the same from your capital gains.
Additionally, if you've lost a particularly large amount during the year, it can help to sell investments at a gain to take advantage of these capital losses. If you've experienced more losses than gains during the year only up to $3,000 of capital losses can be used to reduce taxable income.
5. Maximize Your Retirement Accounts Contribution
At the end of the year, it's also important to maximize any contributions to your retirement accounts.
If possible, you should make your 401k contributions before the end of the year. While you can continue contributing money to your traditional IRAs and HSAs up until April 15th every year, the same is not true for 401(k) contributions.
Try your best to put in the maximum amount that you can for the year if you're serious about saving for retirement and want to reap more benefits for your 2018 taxes.
6. Wait on the Mutual Funds
If you're thinking about contributing to mutual funds in a taxable account before the year is over, you may want to keep waiting a little longer. Purchasing mutual funds before the year is out may cost you money.
By purchasing mutual fund shares before the year is over, you may be required to pay tax on year end dividends right away. This is true even if you've only owned the shares for a very short length of time.
Instead, it's better that you hold off a bit instead. Wait until the beginning of the next tax year to make your purchase so that you don't have to pay tax right away on the dividends that you receive.
7. Make Use of Your Flexible Spending Accounts
A flex account allows you to channel certain money into a special account that is free from income, Social Security, and Medicare taxes. It's typically used to pay for things such as medical bills or dependent care for your children.
If you have a flexible spending account or a flex plan that you have through the company you work for you need to remain aware of it. It's important to start spending the money that's in it before the year is over. If you don't spend the money that's in your flex account by the end of the year it will disappear.
The one caveat to this is if your employer has a special grace period that allows you to spend their money after the end of the year as well. Make sure you know exactly when your unused funds will be lost and don't let them go to waste.
Using These Year-end Tax Tips to Your Advantage
If you want to make sure your taxes pose as little burden as possible for 2018, you'll want to make note of the important year-end tax tips listed above. By using the above tips you'll have the best time possible this tax season and will make sure you minimize how much you must pay.
Looking for help with your 2018 taxes? Contact us today to learn more about what BRW Tax & Accounting can do for you.