Big changes are coming to the tax code. While how exactly those changes will take form is still shaping up in Washington, you can take precautionary steps now to get your tax situation ready for the upcoming filing year. The first thing you should do is get all of your records from the previous few years out in front of you. Take inventory of where you are currently at tax-wise, and from there you can identify areas which make trigger a bigger bill next year from the IRS. Here are a few specific items to pay attention to:
The S&P 500 has been on a record streak. Investors should examine their portfolios closely for gains including taxable investments such as index or mutual funds. Be sure to check on your capital gains rates in particular if you are a retiree – capital gains that are considered income will cause social security benefits to become taxable.
To offset gains consider selling assets that have lost value to help reduce the drag on your portfolio’s growth
Maximize Retirement Account Contributions
Employer 401(k) or 403(b) plan contributions can reduce taxable income for the year, in fact we already know that the limit employees can contribute will INCREASE next year to $18,500. Retirees or those over 50 can also make additional ‘catch up’ contributions that amount to an extra $6,000 for 401(k) and 403(b) plans, and another $1,000 for IRAs.
Small business owners or other self employed individuals who don’t have access to employer retirement plans can also look into individual retirement accounts instead – however, the annual contribution limit for these will remain unchanged at $5,500 in the upcoming year.
Charitable Donations are Tax Deductible: Win / Win
Supporting a charity is always fantastic, and also tax deductible. Donations do not always have to take the form of cash however: big dollar items such as vehicles can be written off taxes, also investment stocks can be donated which is a great way to avoid levies on the gains. At the end of the day however, any donations should be because your feeling philanthropic, not for the tax break.
Invest in your Family’s Health
Maximizing contributions to flexible spending accounts for medical or child care expenses is a great way to save come tax time. Make sure that you plan on using that coverage during the same calendar year however, as these flex spending accounts funds generally do not roll over.
Individuals who belong to high-deductible health plans may consider contributing to health care savings plans. These contributions DO carry over from one year to the next. For parents and grandparents, be sure to look into a 529 plan which is a tax-advantaged savings plan specifically for college costs.