The year is quickly coming to a close and while filing season has not yet begun (IRS anticipates e-filing to begin January 23rd), it's not too late to make some last minute tax moves. Take advantage of these points before December 31st and squeeze as many in before it's too late....
1. Sell off the losers: If your portfolio hasn't been doing well, now is the time to take advantage of those losses. Drop those under performers and buy into a growth stock or simply cash out. Take this opportunity to offset your capital gains; if you don't have any gains, you can deduct up to $3,000 of capital losses ($1,500 if married filing separately) on your tax return and carryover the excess to future years.
2. Clean out that garage: Like most people, you probably forgot about all that stuff you've stowed away that you could just not part ways with. If you haven't used something in 12 months, most likely you won't use it ever again. Go through all of it and consider donating items in good condition to charity. Be sure to obtain a detailed receipt from the qualified charity. You'll not only benefit from a tax deduction (if you itemize), but also get that warm fuzzy feeling inside... maybe.
3. Pay that tax bill: If you itemize your deductions, consider paying your next property tax bill before year end. Don't necessarily wait for January to roll around to remit that payment. Also, if you have estimated taxes to pay, remit your fourth quarter payment in December.
4. Invest in your home: You can claim a credit for energy efficient improvements made in 2016. So if you've been putting off those window and door replacements or hot water heater, boiler or furnace upgrade, now's the time to do it. Be sure to review the guidelines as the improvements must meet certain criteria to be eligible. Hurry, as the credit may disappear in future years.
5. Roth IRA Conversion: If you find yourself in a lower tax bracket this year or anticipate a large increase in income in 2017, consider converting your Traditional IRA account into a Roth IRA. Sure, you'll pay taxes on the conversion but will avoid the 10% early withdrawal penalty. The money will grow tax free and the amount transferred will be eligible to be withdrawn penalty free after you had met the five year rule.
6. Defer income into next year: Anticipating a hefty bonus this year? You may be able to defer your tax liability if your employer offers to pay you in January. Keep in mind that this strategy is only ideal if your tax bracket remains the same or is lower next year.
7. 529 Plan: If you haven't started saving for your child's college education, now is the perfect time to consider a 529 savings plan. Contributions grow tax free, as long as proceeds are used to pay for higher education expense. An added benefit is an up to $5,000 deduction per taxpayer, per year on your state (New York) tax return. Grandparents can also contribute! Keep in mind that these are state run plans, not all states allow for a tax deduction.
Remember, these strategies are not a one size fits all solution, be sure to consult your tax advisor.