Remember the end is near... of the year that is!
New Saver’s Credit
This new credit will make saving for retirement even more appealing to some workers. Tax credits come into play after you calculate how much you owe and reduce your tax bill dollar-for-dollar. For, example, if the tax you owe is $1,000 and you are eligible for a $500 credit, the check you have to write to the IRS is cut in half. Filers who meet certain earning limits will be able to claim the new Saver’s Credit on their returns but only if they sock away some retirement savings. In some cases, thrifty taxpayers can reduce their tax liability by as much as $1,000. Check with your CPA for details on this new credit.
Flexible Spending Accounts
This time of the year is a good time to review and make changes to your employee benefits. If your company offers a flexible spending account or cafeteria plan, these will allow you to withhold money from your paycheck that you can later use to pay for medical or child care expenses. Since the contributions are taken out before payroll taxes are figured, the system reduces both income and Social Security tax liability while setting aside money an employee will need to cover expenses anyway.
Evaluate your investments!
These last two months of the year offer the final chance to assess your investment portfolio and potential tax consequences. Throughout the year, mutual fund managers sell holdings and pass along any profits from those sales to shareholders as capital gains distributions. That means that even if your fund’s overall value declines, you could still owe capital gains tax on these pass-through distributions. To find out how much of a tax bite to expect, check with your fund. If your holdings have simply shrunk, sell down investments and apply the loss as an offset to capital gains. You had no gains? Then use up to $3,000 of your capital losses to reduce your “ordinary” wage and salary income.
Know is the time to explore ways to take full advantage of tax-cutting deductions. You can only claim medical expenses that exceed 7.5% of your adjusted gross income. Do you have any outstanding bills or procedures to be done before December 31 to put you over this threshold? Also, don’t wait until the last minute to make noncash donations to your favorite charity. You may get into too big a rush during the holidays and miss out on reducing your tax bill. Ask your CPA what other deductions would benefit your personal situation before year-end.