The holiday season is our favorite time of the year because its the time previous to the tax season begins. It works to say goodbye to the year and evaluate its performance, tidy up the accounts, make some end of the year tax planning and plan for the following year.
Its important to know all the options we have at the end of the year to save some money, increase our tax refund and improve our finances considerably.
Pay attention and take advantage of these end of the year tax planning tips that we bring you today:
Make a plan
Making a plan can help you stay organized, know in which tax bracket you are and make smart decisions for today and for the upcoming years. If you take a few hours to asses your real situation, you can build a plan that will allow you, among other things:
- See how much money you have and will have in the future.
- Project your income for retirement, as well as all your income sources, such as social security, part-time work, any pension, among others.
- Project your expenses based on your current lifestyle, future movements, health care and taxes for the next tax season and even further in time.
- Create strategies designed to improve your Social Security and Medicare plan.
- Explore different fictional scenarios, such as “what would happen if I retire at 60 or 65,” “what would happen if I work part-time at the age of 55” and other similar scenarios.
- Make smart decisions about the things you can control (savings, investments, the time you will retire, where you will live, etc.) and understand your risk management options that you cannot control (inflation, market cycles and how long you’re going to live).
Increase contributions for your company’s plan
If you have not yet reached your contribution limit to your retirement plan, either the 401k or an IRA, you should try to save as much as you can at this point. Putting money into a retirement savings plan can bring you multiple benefits such as:
- Postpone the amount of taxes on the money you contribute.
- Start your retirement savings and increase those savings thanks to compound interest.
- Boost the value of your savings if your employer makes contributions equal to your 401k.
However, keep in mind that by 2019 the limits to contribute to your savings plan are:
- $19,000 for 401k, 403b, 457 as well as savings plans. And if you are already over 50, you can save $6,000 more. So you can save $ 25,000 a year.
- $6,000 for IRAs and the contribution limit for people over 50. Goes up an additional $ 1,000, so you could save $7,000 a year with tax benefits.
Check your insurance plan and your Health Savings Account
If you can contribute the maximum of your Health Savings Account (HSA), this will bring you multiple tax benefits – money is saved before taxes, grows tax-free and is not taxable when its used.
Reassess your investments
Probably you used a strategy for your investment portfolio according to your financial situation at the time of investing. But as time goes by some investments may not yield the benefits you expected.
When you evaluate and balance your investments, you effectively minimize the risk. This means, buying and selling parts of your investment portfolio. This bring the balance of your investment portfolio back to its initial state.
This way, you can keep the initial strategy of your portfolio, allowing you to stick to your investment plan.
Convert to ROTH
By transferring some money from your traditional IRA to your ROTH IRA, you move your money to a non-taxable retirement plan. Also, will help you reduce your Required Minimum Distributions (RMD).
However, keep in mind when you convert to ROTH you have to pay income taxes on the money you move to that account. If the amount of money is very high, you may not be able to do it in a single year.
Many people make a series of conversions to ROTH every year, especially years where their tax contribution is low.
Plan to make donations to charity
Many taxpayers are beginning to open Donor Advised Funds. These allow you to immediately deduct the total amount of any contribution made annually.
Additionally, these funds grow tax-free and you can use them at any time of the year to donate to qualified charities.
Sign up for Medicare when you turn 65
Regardless of your medical insurance coverage, if you turned 65 sign up at medicare.gov. There is currently a 10% lifetime penalty for every 12 months you spend without signing up for Medicare after you have the required age.
Seek expert financial and tax advice
You will realize that you could benefit from the help of an expert in financial and tax planning.
Some benefits of hiring the help of an expert for some end of the year tax planning are:
- Have an external and objective global vision that reviews your plan and indicates the best steps to take.
- The peace of mind and peace of mind that your retirement plan is properly managed.
- Reduce the amount of taxes and increase your economic prosperity.
- Create and maintain an optimal investment strategy. This includes a defined action plan to use your retirement plan.
- Get advice when making rational decisions, leaving aside subjectivity and emotions.
- Keep your finances up to date. Make sure you don’t lose opportunities for bad decisions or for postponing them.
End of the year tax planning with GlobalTax
Taxpayers tend to get on the train of financial planning at the end of the year, as part of their New Year Resolutions. But taking some early steps can bring great benefits and position themselves much better for the coming 2020 tax season.
Our offices are located at 8133 Leesburg Pike, Suite 920 Vienna, Virginia 22182. You can call us at (703) 533-3636 to request an appointment and get the expert and personalized attention you deserve.