1)
Use Capital Losses to Offset Capital Gains – If you have significant capital gains which are taxable, you may want to reduce your gains by taking capital losses before December 31. Evaluate your stock portfolio
and identify any stocks that have fallen below your cost. Consider locking in your losses this year to offset against your gains. You can always buy back the stock at a later date if you feel it is still a
good investment to hold. However, your loss will be disallowed if you repurchase the same stock within a 30-day period before or after the sale (considered a "Wash Sale").Additionally, if your
capital losses exceed your capital gains, you can deduct up to $3,000 ($1,500 if you are married filing separate) in excess losses against your other taxable income (i.e., wages, dividends, etc.).
2) Increase Charitable Contributions – Donating to a worthy cause not only makes you feel good, but it can reduce your taxable income. Look through your closets and cabinets for items you
no longer wear or use and donate them to your church or any other charitable organization. Don't forget to get a receipt.
In addition to cash and other miscellaneous items, consider donating stock you've held
for more than twelve months. Contributing stock to a charity rather than the proceeds from the sale of the stock will save you from paying taxes on the capital gain and you will still be able to deduct the full,
appreciated value of the stock (only applies to long-term investment). Call your favorite charity for the appropriate transfer documents.
3) Defer Income into the Next Year – If you made
"a ton of money" this year and think you will be in a lower tax bracket next year, consider deferring any year end bonuses until next year. Ask your employer to defer payment until the following year. If you
have your own business, consider sending out December invoices at the end of the month to delay receipt of payment until the next year.
4) Group Itemized Deductions into the Current Year – Some
itemized deductions can only be taken if they exceed certain levels. Miscellaneous itemized deductions such as tax preparation fees, employee expenses and investment costs can be deducted only if they exceed 2% of
your Adjusted Gross Income (AGI). Plan to combine payment of these types of expenses into one year so you can exceed the limit and take the deduction. On the other hand if your miscellaneous expenses are too
low, consider pushing them into the following year and combine them with next year expenses.
Tax deductions are available to everyone, but it's the ones who take the time to plan ahead that can make the most out of
them. There is still time – act now! When April 15 rolls around you will be glad you did.
