Year-End Tax Moves: Smart Strategies to Lower Your Tax Bill

With the end of the year approaching, it's the perfect time to take action and potentially reduce the amount of taxes you'll owe. A little proactive planning could make a significant difference when you file your tax return. Here are key strategies to consider:

1. Defer Income, Accelerate Deductions

If you anticipate being in a lower tax bracket next year, consider ways to defer income until January. This could mean delaying bonuses, invoices, or business sales. On the flip side, accelerate deductible expenses into the current tax year by prepaying property taxes, making extra mortgage payments, or boosting charitable contributions.

2. Maximize Retirement Savings

Contributions to traditional 401(k)s, IRAs, and other qualified retirement accounts not only provide long-term savings benefits but also reduce your current taxable income. Even small last-minute contributions can be impactful. Check the annual limits and make the most of these valuable tax breaks.

3. Tax-Loss Harvesting

If you're holding investments that have declined in value, strategically selling them can help offset capital gains. This technique, known as tax-loss harvesting, reduces your overall capital gains tax liability. Remember the wash-sale rule – you can't repurchase the same or substantially similar securities within 30 days.

4. Donate to Charity

Charitable donations can significantly impact your tax situation if you itemize deductions. Consider donating cash or other assets such as appreciated stock. Make sure to document your donations with receipts for tax purposes.

5. Take Advantage of Flexible Spending Accounts (FSAs)

If you contribute to a health FSA or a dependent care FSA, ensure you use those funds by the deadline or risk forfeiting them. Schedule any necessary medical procedures, stock up on eligible supplies, or use the funds for childcare expenses.

6. Bunch Your Deductions

Some deductions, including medical expenses, only become deductible when they exceed a certain percentage of your adjusted gross income (AGI). To take advantage of eligible deductions, consider "bunching" them into one year by timing non-urgent medical procedures strategically.

7. Take Home Office Deductions

If you're self-employed or run your business from home, don't overlook potential deductions related to your home workspace. Calculate eligible expenses based on the area used exclusively for business.

8. Review Energy-Efficiency Tax Credits

Did you make energy-efficient home improvements this year? You may be eligible for valuable tax credits. The Inflation Reduction Act extended and expanded existing credits for things like solar panels, energy-efficient windows, and doors.

Additional Year-End Tips

• Required Minimum Distributions (RMDs): If you're 73 or older, don't forget to take your required minimum distributions from traditional retirement accounts or potentially face penalties.

• Estimated Tax Payments: If you're self-employed or receive significant income that's not subject to withholding, review your estimated tax payments to avoid penalties in April.

The Importance of Professional Guidance

Tax laws can be intricate, and everyone's situation is unique. Consulting with a qualified tax advisor at Callison CPA is the best way to develop a customized year-end plan that maximizes your benefits within the tax code. Contact us for a free consultation.