As April’s tax deadline looms, there are some things you can do before Dec. 31 to cut your tax bill.
First, use any extra money to make a final contribution to an IRA or 401k. This makes a tidy deduction in taxable income. In 2018, those limits are $5,500 and $18,500, respectively.
Don’t forget that unused money in a flexible medical spending account will be lost at the end of the year so use the balance to stock up on eligible household items like bandages, vitamins, and sunscreens.
Homeowners that plan to itemize their deductions should think about squeezing in an extra mortgage payment at the end of the year, something that adds to a deduction and pays your house off sooner.
One significant change in the 2018 tax code caps the deduction for state and local taxes (SALT) at $10,000 for any combination of property, income, or sales-related taxes. For those with expensive homes in high property-tax states, this can be a hit. For example, New York’s average deduction last year was $21,000. The deduction cap won’t affect the average homeowner outside coastal and metro areas.
According to Quicken, the end of the year is also an excellent time to make energy-efficient improvements such as insulations, roofs, or doors that can qualify for up to $500 through the Residential Energy Tax Credit.
According to Quicken, the end of the year is also an excellent time to make energy-efficient improvements such as insulations, roofs, or doors that can qualify for up to a $500 credit.
Many people can gain a small advantage in their taxes by selling investments that lost money during the year and using the losses to offset capital gains on a dollar-per-dollar basis, up to $3,000, on the ones that did well. Extra losses can also be carried over to future tax years, meaning one particularly lousy year can spread out over time.
Additionally, donating cash to charity is deductible, but it is important to remember that unwanted items can be given and written off at current fair market value as well.