While it may seem slightly premature to think about taxes now, the end of the year provides incredible opportunities to squeeze in some last-minute retirement savings, revisit financial goals from the beginning of the year and update insurance accounts, among others.
Below are just a few ways you can reduce your tax liabilities – and save money – in the year to come.
1. Maximize retirement savings.
You still have time to increase your savings rate into your employer-sponsored retirement accounts before the end of the year. And if your income was lower this year, you could also consider converting from a Traditional IRA to a Roth IRA as that way, you’ll pay taxes on that income during a year when your tax rate is lower than usual. Try this IRA Conversion Calculator to weigh your options.
2. Think big.
Step back and examine your overall financial situation. If you changed jobs, sold or bought a house, or added to your family, you might need to add new insurance policies, adopt a more ambitious savings plan or rebalance your long-term investments. Big life changes almost always require a review of your financial situation.
3. Examine your goals.
If you’ve achieved your goal of funding an emergency savings account – having at least three to six months’ worth of expenses in the bank based on your family size in safe, liquid investments – consider moving the excess to a more aggressively invested account to maximize returns. You can also consider rebalancing your retirement accounts, which means taking those assets that are above your target percentage and selling what you have too much of to buy what you have too little of.
4. Review your spending.
Review where your money has gone this year to help you plan for next year. Determine if you need better systems in place, like a separate savings account for travel and vacations, or putting business expenses on a separate credit card. This is also a good time to review your cable and wireless bills and even consider calling each provider to request a more competitive rate.
5. Save surplus.
For those earning $118,500 or more annually, they will get a boost in their paycheck toward the end of the year after they’ve maxed out their Social Security contributions for the year. But instead of spending this ‘bonus,’ consider increasing your emergency reserves, paying down any consumer debt, or funding a Roth IRA.
6. Contribute to a 529.
Contributing to a 529 college savings plan will help pay for children’s or grandchildren’s future educations. While the annual gift limit for grandparents is $14,000 per person, it can actually be combined up to five years in advance which means you can put $70,000 in a 529 account in one year without triggering federal gift taxes, getting the money into the market quicker.
7. Review your beneficiaries.
After big life events like marriage or birth, people often forget to update their employer benefits. It’s always a good idea to align beneficiary designations with your estate planning documents.
8. Review your health insurance.
With the end of the year bringing open enrollment, now is the time to consider a Health Savings Account (HSA) or Flexible Spending Account (FSA) to let you pay, on a pre-tax basis, for qualified medical expenses that are either not covered or only partially covered by insurance.
9. Take advantage of tax credits.
With taxes in mind, consider using your credit card to purchase items in December that might be tax deductible, even if you’ll pay the bill in 2018, to generate deductions for this year. Some examples of deductibles or tax credits include energy-efficient home improvements or certain school expenses.
10. Make donations.
According to studies, most charitable contributions are made between Thanksgiving and New Year’s – and for good reason. Beyond the obvious reasons to be charitable, most people make year-end donations so it counts toward their current year’s contributions for tax purposes.
With just a few thoughtful year-end precautions and considerations, you can take advantage of tax benefits through December 31. Request a consultation the experienced professionals at Bedinghaus & Co. today for more information on how you can maximize your tax benefits.