At Be Secure Financially we love a good series to help you on your path to financial freedom. It is almost the end of 2018, which means this is the time to really start preparing for tax season. Often this can seem like a stressful time of year, particularly with holiday spending. We're sure the last thing you're thinking of is taxes. However, to ensure that you are prepared come tax season in April, now is the time to make sure you have your ducks in a row for this year's taxes.
1. Make Your Charitable Contributions
Charitable giving is good for the soul and for tax mitigation. Make sure to officially make your donation before December 31 for it to count towards your 2018 tax year deductions (assuming you are itemizing deductions).
2. Make Sure You Have Contributed Enough To Your 401(k) And To Your Other Retirement Accounts
401(k) contributions are tax-free contributions. This means that you do not pay taxes on the money that you contribute to your 401(k). You can contribute up to $18,500 per year ($6000 more if you are 50 or over.) Contributing to a 401(k) allows you to pay income tax only when you withdraw money from the plan in the future, at which point your income and tax rate may be lower or you may have more deductions available to offset the income. If you have not maxed your 401(k) this year but would like to, make sure to alert the administrator of your 401(k) so you can increase your contribution for the last month of the year.
3. Fund College Expenses For Your Child or Grandchild
Contribute to a 529 college savings plan for your child or grandchild and you may reap some state income tax benefits. Most States offer a tax deduction for contributing to a 529 Plan. You’ll also have tax-free withdrawals from the plan to pay for future college costs.
4. Use Your Flex Money
If you have a flexible spending account at work, time's running out to use it. If you contributed money to your flex plan early in the year, you got great tax savings from the pre-tax treatment of your contributions, and you don't have to pay tax on withdrawals used to cover medical expenses. However, flex plans can have different provisions for money that's left over at the end of the year, and in some cases, if you don't use it, you'll lose it. Look closely at your plan details to see when you have to zero out your account or risk forfeiting what's left.
5. Harvest Your Tax Losses
With market volatility having hit many investors, selling losing investments can give you a valuable tax break. By using tax loss harvesting, you can recognize capital losses that you can use to offset capital gains or cut your other taxable income by up to $3,000 each year. To use the strategy, you have to sell your losing investments by December 31, and it's generally a good idea to get done before the last minute to ensure there aren't any problems in getting the transaction done.
We want you to be prepared come tax season, so be sure to come back to Be Secure Financially next week for another tax topic. We will be including various tax issues, topics, and things to make sure you have covered in our "End Of The Year Tax Series".