Posted by Cindy Wilson.
With the days getting shorter and the air chillier, I’m already looking forward to spring. Usually around this time of year, I’m also preparing for tax season—by minimizing my taxable income as much as possible before December 31st. Here are my three end-of-year tax tips to help slash the amount you owe Uncle Sam in April:
- Max out your employer-sponsored retirement account. Contributions to your 403(b) or 401(k) will reduce your taxable income by up to $18,500, or $24,500 if you’re 50+. (These are the 2018 contribution limits). So, if you haven’t already maxed out and are due to receive an end-of-year bonus (or simply have some spare cash lying around) considering diverting some of that money to your retirement plan. With IRAs, you can keep making contributions up until Tax Day, so focus on your workplace plan for now.
- Max out your Health Savings Plan (HSA), if you have one. And if you don’t, consider enrolling in your employer’s HSA for 2019, even if you don’t expect to visit the doctor. They boast a triple tax advantage: Not only are contributions deductible (up to $3,450 for an individual and $6,900 for a family plan), but earnings on your underlying investments are tax free, plus the withdrawals you eventually make won’t be subject to income tax either. That is as long as they are used for qualified health expenses.
- Make charitable donations. If you decide to fill out an itemized tax return in 2019, you can deduct the donations you made to the charities you hold close to your heart (your qualified charitable deduction can’t be more than 50% of your adjusted gross income). Or, if you want the tax break now and decide where to donate later, you can deduct contributions to a donor-advised fund (up to 60% of your AGI). For the record, charitably inclined people over 70½, who don’t need to tap into their IRAs anytime soon, may consider diverting their required minimum distributions (RMDs) to charitable organizations rather than pay tax on income they don’t immediately need.
So, before you get swept up in the holidays season, take this time to review your budget and find ways to whittle down your taxable income. It may really pay off come tax season.