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5 Tax Tips You Don’t Want to Miss

As the holiday season approaches so does another (less exciting) season. That’s right, tax season! Good news is, if you’re reading this now you haven’t missed out on opportunities that disappear at year end to maximize tax savings and reduce your overall bill. 

Here are 5 end of the year tax tips you don’t want to miss. 

1. Maximizing your retirement savings

Contributing to tax-deferred retirement accounts–such as a 401(k)–reduces your overall taxable income. As year end approaches, now is a good time to evaluate if you can increase what you are saving for retirement. Many employers also offer matching contributions, which is essentially free money on the table, so take full advantage of these funds.

Another type of retirement fund is a Roth IRA or a Roth 401(k), where contributions are made with after-tax dollars, but the money can grow tax free and be withdrawn without taxes once you retire.

2. Creating a Health Savings Account (HSA)

Health Savings Accounts offer tax advantages in 3 ways: 1) You pay no federal taxes on your contributions, 2) Your investment earnings face no federal taxes, and 3) As long as withdrawals are for qualified medical expenses, you pay no taxes on them. 

If you are fortunate enough to not have medical expenses, after the age of 65 you can use the money left over for living expenses, but the money may be subjected to tax if not used for medical purposes. 

3. Giving to your favorite charity for tax savings

Charitable giving allows you to take tax deductions in a variety of ways. One, if you strategically give during a high-tax year, you are able to maximize your itemized deductions in that year while also increasing the standard deduction the next year. Two, if you take a Required Minimum Distribution from your IRA, you are able to donate up to $100,000 directly from your IRA, benefiting your charitable intent and reducing your taxable income by the amount you donate.

4. Gifting assets–tax free

Every year, you are permitted to gift up to $15,000 to any number of people without having to pay a gift tax. Over time, this allows you to transfer wealth to loved ones tax free without being subjected to gift and estate taxes. 

5. Rebalancing your portfolio–in a smart way

At the end of every year you should consider rebalancing your portfolio–some of your investments are likely to have grown more than others, potentially skewing your intended asset distribution. This can leave you at higher than your intended level of risk if the market should change. 

When balancing your portfolio, you sell positions that exceed your target allocation and move the proceeds to positions that have become underrepresented. Selling a position is a taxable event, so it is important to plan to reduce the loss of income to taxes. 

One strategy, called tax-loss harvesting is to sell a position at a loss, which can reduce your capital gains to zero, or even offset up to $3,000 of your ordinary income every year. This strategy can be used to re-diversify stock positions and sell underperforming investments.

Final Thoughts

These tips are standard end-of-the-year tax planning strategies. However, every year new policies are proposed in Washington. These changing policies are important to consider when planning out your tax strategy.

As always, if you have any questions or want to get started on your strategy, reach out! We are available at (480) 214-9596 or info@scfinancialservices.com, we offer a 30 minute no obligation consultation to assist you with these questions. 

Also, be sure to follow us on LinkedIn to be updated when we post our next article on a financial planning topic.

Thank you!