Tuesday , 25 June 2024

Reduce the Amount of Tax You Pay Next April By Doing the Following

Financial decisions you make between now and the end of the year can have a significant effect on how much tax you have to pay next April…but time is running short. It will be too late to cut your tax bill using most of the tips assembled below after we ring in the new year so check out this list from Kiplinger.com right away and get started!

This post by Lorimer Wilson, Managing Editor of munKNEE.com, is an edited ([ ]) and abridged (…) version of a article by Kiplinger and you are encouraged to visit the original article for more detailed advice.
  1. Use the IRS’s Tax Withholding Estimator as soon as you can to determine whether you should file a new Form W-4 with your employer and increase the amount of taxes withheld from your paycheck before the end of the year…[For more details go here.]
  2. If you plan to itemize your deductible expenses when you file your 2021 tax return now is a good time to prepay expenses such as mortgage payments and state taxes due in January. For other moves to make by New Year’s Eve go here.
  3. The tax code allows you to sell investments you have held for a year or more that have fallen below your purchase price and use the resulting loss to offset capital gains in taxable accounts and that’s a compelling reason to consider jettisoning your losing positions. If you still wind up with an overall net capital loss, you can use up to $3,000 of that loss to offset ordinary income and roll the rest over to the following year…[For more details go here.]
  4. Mutual funds are required to pay out to their shareholders any gains realized from the sale of stocks or bonds during the year so, if you own the fund in a taxable account, you must pay taxes on these distributions when you file your tax return, even if you reinvest them. Therefore, if you get hit with a distribution, review your portfolio to see if you have any mutual funds, stocks or bonds that have declined in value since you purchased them and celling them before year-end to provide losses to offset your gains…[For more details go here.]
  5. Pretax contributions (you can contribute up to $19,500 to a 401(k), 403(b) or federal Thrift Savings Plan in 2021, plus $6,500 in catch-up contributions if you’re 50 or older). will lower your take-home pay and reduce your tax bill. If your employer offers a Roth 401(k), you can make contributions that won’t lower your taxable income now but that can be withdrawn tax-free in retirement. If your employer offers both types of plans, you can direct new contributions to the Roth 401(k) rather than the pretax 401(k) at any time…[For more details go here.]
  6. Putting…stocks or personal property, in a donor-advised fund will allow you to deduct the entire contribution in the year you make it and decide later how you want to dole out grants to charities of your choice. Contributing one lump sum this year may help lift your deductions above the standard deduction amount and allow you to itemize. [For more details go here.]
  7. For the 2021 tax year, you can deduct cash donations of up to 100% of their adjusted gross income. If you itemize, donating clothes, kitchenware or furniture you no longer need…base your deduction on the donated item’s “fair market value” (what it might sell for at a thrift or consignment shop) or use online tools such as TurboTax’s ItsDeductible tool to estimate this value. You will need a written acknowledgment from the organization if you are claiming a contribution of $250 or more (consider snapping a photo of the donation for your records). For donated items valued at more than $5,000 (art, antiques, etc.), plan on providing a written appraisal. [For more details go here.]
  8. The majority of taxpayers no longer itemize on their tax returns but if you make a charitable cash contribution before December 31, you may be eligible for a modest deduction ($300/person), even if you don’t itemize. For donations under $250, you need a bank record, such as a cancelled check or credit card statement. For donations that exceed $250, you should obtain a written acknowledgement from the charity that shows the date of the contribution, the amount, and states whether you received any goods or services in exchange for your donation. [For more details go here.]
  9. Taxpayers who are 70½ or older can transfer up to $100,000 from a traditional IRA tax-free to charity each year, as long as they transfer the money to the charity directly…[Such] a “qualified charitable distribution” (QCD) will reduce the size of your IRA, which will reduce future required withdrawals, and your tax bill too. Plus, the transfer could help keep your income below the threshold at which you’re subject to the Medicare high-income surcharge as well as hold down the percentage of your Social Security benefits subject to tax…To qualify for the tax break, the money has to be out of the account and the check needs to be cashed by the charity by December 31. [For more details go here.]
  10. Consider converting some money from a traditional IRA to a Roth IRA this year, up to the top end of your income tax bracket, especially if you believe your taxes may go up in the future. You’ll pay taxes on the conversion (minus any portion that represents nondeductible IRA contributions), but the money will grow tax-free in the Roth after that. Converting your entire traditional IRA balance can bump you up to a higher tax bracket, but you can spread conversions over several years. [For many more important details go here.]

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One comment

  1. Really? This iz the best advice you have to not pay income tax? No mention of getting some of your old stuff to Goodwill and get some receipts. How about selling your equities and getting income producing real estate properties. You gloss over THE most taxed advantaged investment in probably the history of income tax. Lets be real here. if you are just now, in November, trying to plan for taxes then you are just wrong and probably have little to financial intelligence.