As this year winds to a close, many of us are focused on such issues as what to make for Thanksgiving, and which presents to buy for Christmas. There are also important financial issues that, while they might not necessarily be first in our minds, need attention as well. Among these are making decisions about medical and life insurance, and health savings accounts for next year. There are also last-minute tax issues to consider that could have a huge impact on 2018’s tax bill.
Maximize 401(k) transfers
If you’re looking to reduce taxable income, transfer the maximum into a qualified 401(k) account. The federal tax code allows a yearly contribution of $18,000 for taxpayers under the age of 50, and up to $24,000 for older taxpayers closer to retirement age. These contributions are pre-tax, and lower overall taxable income.
Carefully analyze stock performance
Some investments are consistently high-performing. They pay dividends year after year, and prove profitable in both the short- and long-term. Others, though, are much less beneficial to our overall stock portfolio.
If you have any underperforming investments, now may be the best time to get rid of them. The IRS allows for something called “tax-loss harvesting,” which is a technical way to describe offsetting stock/investment losses with capital gains from other sources.
First priority goes to like-kind offsets, but even without that, other losses can still be balanced out. A further $3,000 in additional losses can carry over if this tax year doesn’t offer any additional capital gains.
Can you afford any additional mortgage payments?
Even a single extra mortgage payment (to total 13 for the year instead of 12) in 2017 will result in a higher mortgage interest deduction for next year. This is a very valuable deduction in and of itself, and it may have an even greater impact if current tax overhaul proposals end up making itemization unprofitable.
Not every tax strategy is appropriate for every taxpayer. For questions about how best to lower your 2018 tax liability, consult an experienced tax attorney, particularly if you have complicated issues like offshore accounts, back tax payments/arrearages and more.