It’s the end of the year. Pretty soon it will be a new year and tax season again. Which leaves you with a few options. One is to put things off till January or do the last-minute rush in April. But you need to start planning now if you want to make the most of your tax savings. Plus the end of the year is a great time to knock out a bunch of financial stuff all at once.
The best place to start is with last years tax return. If you haven’t had any major life changes this year, it should be pretty easy. You’ll need the same information. Now you just have to get it all organized.
Of course, any life changing events like a marriage, divorce, new baby, or new home can all trigger potential credits or deductions. You’ll need some extra time sorting through everything.
If you’re not sure what qualifies as life changing to the IRS, grab this tax preparation checklist to simplify the process. Also, it’s never a bad idea to see where you stand. Get an early estimate from your accountant or run the numbers through some tax software.
Lastly, adjust your withholding. If you have too much or not enough taken out of your paycheck, make the change. You can argue the benefits of refunds versus owing taxes. Regardless, it’s time to make an adjustment if either number is always big.
Boost Your Retirement
The cutoff for employee retirement contributions is December 31. Get any extra money in now while you can. In the end, it’s a great addition to your retirement savings and it reduces your taxable income.
It’s also a great time to make adjustments for next year. Increase your 2013 contribution amount now if you can swing the extra retirement savings. You might as well knock 2013 off your list now.
IRA’s are a different story. The cutoff for IRA contributions ends on April 16, 2013. Why the difference? The IRS allows you to backdate IRA contributions up till the tax return due date. That leaves a lot of time to procrastinate. If you wait too long you just might forget. So open an IRA today.
Get everything set up now, so you’re not rushing at the last-minute when taxes are due. Just make sure to select the right tax year when putting money in the account.
Charitable giving is always a hot topic this time of year. From a tax standpoint, you only benefit if you itemize your deductions each year. If you fall into this category or think you might, it’s a good time to start cleaning out your closets.
Charitable deductions include money and items (their fair market value). That means clothes, toys, cars, furniture or anything really. As long as the organization takes it, you might get a deduction.
There’s just one stipulation. The donation must be made to a qualified organization. If you aren’t sure your charity of choice qualifies, just ask. Or, use the IRS Select Check Tool to search for qualified organizations in your area.
An end of the year portfolio review gives you a chance to make changes, rebalance, and lower your taxes at the same time. An easy way to offset capital gains, is to take a capital loss. If you are planning on selling a big loser, now is the time to do it. Just watch out for the wash sale rule.
Cost basis rule changes now require your brokers to report the purchase and sale price of certain investments. Why is this important? When you sell a losing investment to offset capital gains, or any investment really, it helps to know which cost basis method to use. You could be left with a higher tax bill if you choose the wrong one.
Lastly, if you aren’t sure about something, talk to your financial professional or tax pro now and get everything squared away before year-end. Once January 1 rolls around, it will be too late.