Wasn’t it just yesterday you were itemizing your deductions and filing your 2015 taxes? As we approach the end of another year, you might be wondering what—if anything—you can do to lighten your 2016 tax bill.
Smart financial choices you can make before 2016 runs out.
Wasn’t it just yesterday you were itemizing your deductions and filing your 2015 taxes? As we approach the end of another year, you might be wondering what—if anything—you can do to lighten your 2016 tax bill. Here are some of the best money moves you can make before the calendar turns over to a new year:
- Paying your real estate taxes before the year ends may make sense for some individual financial situations. Ask a smart financial advisor about whether it could be a good move for you.
- If you’re investing in a tax-deductible and tax-deferred account through your employer and received a financial windfall this year, it may not be too late to make a large contribution. Doing so could result in significant savings on your 2016 income taxes.
- Consider investing in a Roth IRA. Distributions are tax-free and not subject to required minimums. You generally have until April of 2017 to complete a 2016 Roth IRA. Just keep in mind that there are limits to the total income you can earn if not part of an employer Roth.
- If you’re thinking about selling for capital losses or gains in taxable accounts before the year ends, consider it carefully. Selling to take the loss and rebuying a similar investment can seem smart, but remember that you will have a lower basis, thus increasing the taxable portion in later years.
- Don’t get stuck in the myth that you should avoid capital gains. Some of the best money moves result in capital gains, and your tax planning should not be simply balancing out gains and losses with tax-selling.
- Contributing to qualified charities reduces your income taxes. If you would like to allocate a significant amount of money now for a charitable contribution later, ask your investment advisor about Donor-Advised Funds.
- Beware of putting money into medical flexible spending accounts and losing the money at year-end or racing to use the money up in ways that result in foolish spending on unnecessary items. Plan more carefully for next year: does your medical plan allow a Health Savings Account (HSA), where you won’t lose the money and can invest to grow the account for future years when medical expenses might be much greater?
These year-end smart money moves can help you lighten your tax bill and make sound financial decisions for 2017. For a straightforward approach to the end of year financial planning, schedule an appointment with one of our Madison-area investment advisors today.