4 smart end-of-year tax moves to make
Do your future self a favor and give tax-related matters some consideration before the new year
Taxes may be the furthest thing from your mind among the holiday merriment and end-of-year madness, especially since Tax Day is still months away. But giving tax-related matters some consideration before the new year can make matters easier (and sometimes less costly) when it comes time to file in April 2024.
With that in mind, here are some tax moves to consider making in the final month of this year as a favor to your future self.
1. Put more into your retirement account
If you have any wiggle room in your budget, consider stashing away a bit extra in your retirement account before the year's up. For those with a workplace retirement plan like a 401(k) and an employer match, aim to give enough to maximize your employer's contribution. "Not only is that employer match free money you can put toward retirement," Nerdwallet pointed out, "but because contributions are typically made pre-tax, they can also lower your taxable income."
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Those who don't have a retirement plan at work can still reap some tax benefits by contributing a bit extra to their IRA or SEP IRA. Because these accounts are funded with pre-tax dollars, contributions "may also help lower your taxable income," per Nerdwallet.
2. Look into tax-loss harvesting
Another move you might consider to cut down on your future tax bill is tax-loss harvesting. With tax-loss harvesting, you can "sell a losing stock or bond and then use that capital loss to offset tax gains, either in the current or a future year," Kiplinger explained. Those losses can then be used "to offset gains on the sale of a stock or bond, a home, a business or a capital gain from a distribution from an actively managed pooled investment," or even "to offset taxes on up to $3,000 of ordinary income," according to Kiplinger.
That said, there are some IRS rules as well as "risks and tax implications" around tax-loss harvesting, so it might be smart to consult an expert before making this move, Kiplinger advised.
3. Donate in a tax-effective way
Charitable donations and the holiday season already go hand in hand, so why not make them tax-effective as well? There are a number of options for how to do this. For one, you can "strategically bunch your [donations], so you can clear the threshold for the standard deduction and receive credit for your expenses," contended Bankrate. You might also consider donor-advised funds, which "offer an upfront deduction and act like a charitable checkbook for future gifts," noted CNBC.
Other possibilities include making "the donation of appreciated securities, which are not subject to a capital gains tax when received by a qualified charity," or making a qualified charitable distribution (QCD), "which can be made from certain IRA accounts to reduce a tax bill by reducing or eliminating a required minimum distribution (RMD) or reducing taxable income," explained Kiplinger.
4. Add to your health savings account (HSA)
Contributing to a health savings account, or HSA, not only lets you "save toward qualified health care expenses" — it's also "another way to reduce your tax bill," Nerdwallet noted. In fact, as Louise Cochrane, a certified public accountant and enrolled agent in Alameda, California, told CNBC, these accounts are actually a "'triple threat' for tax breaks," as they allow you to "claim an upfront deduction," enjoy "tax-free growth," and make "tax-free withdrawals for qualified medical expenses."
Just know that not everyone qualifies for an HSA. Per Nerdwallet, to qualify, "your employer must offer a high-deductible health plan with access to an HSA, and you can't be enrolled in Medicare or claimed as a dependent on someone else's tax return."
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Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.
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