Year End Tax Planning Ideas
At the end of every year, Americans rush to make money moves that can reduce their tax liabilities. As 2018 comes to a close, consider these moves to reduce your tax bill and put more money in your pocket.
You often hear about how investors can use the realized losses from their failing investments to reduce capital gains. What if you have no capital gains? In that case, you may reduce your taxable ordinary income by up to $3,000 of capital losses. To come up with your loss, subtract your purchase price and any fees from your sales price.
If you itemize, don’t forget to deduct mileage related to your qualified charity work at 14 cents per mile. You can also deduct the fair market value of goods you give to charity, including clothing and shoes, but get a receipt for the items to claim the deduction. And if you’re self-employed and pay both the employee and employer portions of Social Security and Medicare taxes, you get to deduct the employer’s half whether you itemize or not.
WATCH OUT IF ...
You live in a state where you won’t be able to deduct all your state income and local property tax, which now have a combined limit. Also, be careful that you're depositing enough taxes if you have a large number of dependents; most dependents aren’t deductible for tax year 2018 and beyond.
In these cases and others where you have more income or fewer tax deductions than expected, increase your estimated quarterly tax payment for the fourth quarter. Ask your employer for a W-4 form to fill out so you can deduct extra tax money from your income. Generally, you have to pay at least 90% of your tax liability, either through employer deductions or estimated tax deposits, to avoid a penalty on the amount of any underpayment.
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