Although Tax Day may seem like it’s a long time from now, it’s never too early to evaluate your current tax situation. Doing so can enable you to take a few last-minute steps to ensure that you’re approaching your tax planning in the most efficient way.
The end of the year is just around the corner, but there are still a few things you can do to ensure your upcoming tax bill isn’t higher than expected. Consider:
Increasing your employer-sponsored retirement plan contribution. The money you contribute to your plan (if it’s not a Roth) is excluded from your taxable income. So, if you aren’t on track to max out your 401(k) contribution, consider directing extra dollars to your retirement plan today.
Boosting your withholding. If it looks like you’ll likely owe taxes, you can increase your withholding now to help take the bite out of the amount you’ll pay later.
Looking for losses. If you have taken capital gains on sales of stock or other assets, you may consider offsetting those gains by taking losses elsewhere in your portfolio. Year-end is a good time to review your portfolio with your tax advisor to see if sales of depreciated assets now can benefit you on tax day. Mutual funds can pay long-term capital gain dividends at year-end, so you may want to check on any fund investments to see if this is right for you.
Gifting to your favorite charities. If you itemize your deductions, you can write off your charitable contributions, whether you donate clothing and household items in good used condition or give a gift of cash or appreciated securities, such as stocks or mutual fund shares that you’ve owned for at least one year. If you are wondering whether an organization you’re giving to is approved by the IRS, visit Search for Charities at www.irs.gov.
When it comes to tax preparation, organization is key and the earlier you start the easier it is. Your best bet is to have a filing system that you keep in a secure location. It should include the following information:
Personal information file. List the birthdates and Social Security Numbers for you, your spouse and any children or other dependents.
Deductions file. Include the receipts for any items that may qualify for deductions, such as paid medical and dental invoices, charitable donations or monetary gifts, and child-care, educational and business expenses. If you have multiple deductions in several areas, consider keeping an individual file for each subject.
Incoming tax documents. Put all the documents that begin rolling in after the first of the year recording your annual earnings, gains and losses in a file as they arrive so you don’t misplace them or have to hunt for them later.
For help assessing your tax situation or identifying strategies that may benefit you, consult your tax professional or financial advisor.
— Rick Gross is a Financial Advisor and Private Wealth Advisor with Ameriprise Financial Services, Inc. in South Lake Tahoe. He specializes in fee-based financial planning and asset management strategies. To contact him, visit www.rickgrossadvisor.com or 530-542-6266.