In this post I’m going to share three tax tips that you can do to maximize your savings this year, but you won’t want to wait until the last minute to do these.
But first, if you just want to talk with someone about these tax steps or tax planning, or retirement planning or investment planning, click on the link at the end of this post, and I’d be glad to have a short strategy call with you.
Now, on to the First Tip:
If you have an investment and the value is less than what you bought it for, it might be advantageous to sell that investment for a loss. Now, what that does is offset any potential capital gains that you might have incurred throughout the year. If you don’t have any capital gains, you can actually offset your ordinary income up to $3,000. And that’s just when you file your tax return, you’ll be able to deduct up to $3,000 of capital losses. This strategy is called tax-loss harvesting, and you should talk to your CPA or financial team to make sure that it works for you.
This one is more urgent and needs to be done at least a month before the end of the year. I know this has been a hard year for many, and if you’re struggling financially, then this probably is out of the question, but if you’re doing okay financially, you might be able to increase the tax savings that you’re going to get by really maxing out your retirement plan contributions.
And the reason why I say that you should start to do this now, or at least a month before the end of the year, is because if you’re putting money into your 401k, that’s based on a little contribution going in each pay period, and there are only a few pay periods left. So, there are only a few contributions that you could make before the end of the year. If you want to max out your 401k, you need to up the percentage to see if you can get to that maximum out.
If you’re self-employed, you might have the option of a solo 401k, which I would look into. And if you don’t have either of those options, then you might be able to do a deductible IRA contribution. Now that all depends on your income and how much you made this year. Some people end up getting phased out of actually getting to deduct their IRA contributions, so be sure to double-check on that.
The last way to maximize your tax savings is to donate goods. It’s not just investments and cash that count as a deduction on taxes. You can give away old kids toys or furniture, or slightly used clothing, things like that. And you can give to places like the Salvation Army or Goodwill or other non-profits. And if you’re thinking about doing this, because things are uncertain with store hours and the pandemic, I would think about doing it now, just so you can get the deduction for this year.
So those are the three tax moves that you can make at the end of this year. I think it’s worth it to start planning now, before it gets too late, before it’s already December and Christmas time or holiday time.
If you do have questions about tax investments or retirement, click on the link here, and I’d be glad to talk with you more.