“Countdown” time is here again, with reminders everywhere pointing out how many days are left until anticipated events. While you’re marking your calendar, remember that countdown time is great for tax planning, too, because it means you can still implement strategies to reduce your tax bill.
Here are three actions for your to-do list:
- Review retirement contributions. If you’re not on track to reach the maximum deferral allowable, consider increasing your contributions. Pre-tax retirement plan contributions reduce federal adjusted gross income – and your tax.You can contribute up to $15,500 to your 401(k), plus an additional $5,000 if you’re 50 or older by year-end. The maximum SIMPLE contribution is $10,500 (plus $2,500 if you’re over age 50).
- Estimate tax liability. Figuring out whether you’ll be over- or underpaid now gives you time to adjust the income tax withheld from your wages for the year. As a general rule, to avoid penalties for underpayment you’ll need to prepay at least 90% of your tax liability.
- Take advantage of expiring tax provisions. The nonbusiness energy property credit, which lets you claim a credit of up to $500 against your federal tax bill for certain energy-efficient home improvements.December 31 is also the last date for making charitable donations of up to $100,000 from your IRA. If you’re age 70½ or older, these distributions may be nontaxable while satisfying your minimum annual withdrawal requirement.
Please contact us for additional tax saving ideas tailored to your circumstances.