In the novel David Copperfield, Charles Dickens called procrastination the “thief of time.”
Procrastination also can cost you plenty of cold hard cash when it comes to your income taxes.
There are several strategies that can help you reduce your taxes this year and in the future — but you must move quickly. You’ll have to beat certain deadlines, or the opportunities will disappear.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. Maximize your savings.
Consider putting more money into your individual retirement accounts, Roth IRAs, 401(k)s, 403(b)s, etc. Saving any amount toward your retirement is smart — but if you can, consider contributing the maximum allowed.
- The limit for tax-deferred retirement accounts (such as 401(k), 401(b), most 457 plans and the Thrift Savings Plan) is $18,000 for 2017, and you have until Dec. 31 to get the money in there. Savers over 50 also can make a catch-up contribution of $6,000 for a total of $24,000.
- No 401(k)? You can contribute up to $5,500 ($6,500 if you’re 50 or older) to a traditional IRA and/or Roth IRA until April 15, 2018, and have it count toward your 2017 taxes. The Roth won’t reduce your current tax bill, but earnings and withdrawals are typically income tax-free — something you’ll love in the future.
- Two other options are available for those who are self-employed: a SEP IRA and a Solo 401(k). Each has a maximum contribution amount of $54,000, or $60,000 for those over 50.
2. Look at your losses.
Although 2017 was a great year for most investors, many still have stocks, exchange traded funds (ETFs) or mutual funds that experienced a capital loss. If these losses are greater than your capital gains, you may be able to deduct them from your ordinary income — up to $3,000. If you can’t write off all your stock losses this year, you can carry over the loss to future tax years. (There are rules for making these calculations, so be sure to consult your tax professional.)
3. Think about deferring some income.
If you’re concerned because you’re on the cusp of entering the next tax bracket this year, or if you expect your income to be less next year, consider deferring a paycheck or other income to minimize your current liability.
4. Accelerate your deductions.
You also may want to look at paying some deductible expenses this year rather than next to temporarily lower your income. If you use a credit card to pay one or more of next year’s bills today, you can deduct the expenses in 2017, then pay off that amount next year. (This would work for medical or dental expenses, for example, or if you’re planning to add solar panels to your home.) If you’re retired or self-employed, prepaying the balance of your estimated state tax liability this year rather than waiting for January would secure the deduction for this current tax year.
5. Consider donating appreciated securities to charity.
Most publicly traded securities with unrealized long‐term gains can be donated to a public charity (501(c)(3). You can then claim the fair market value as an itemized deduction on your federal tax return — up to 30% of your adjusted gross income. You won’t owe capital gains taxes because the securities were donated, not sold. If you wish to make a larger contribution ($5,000 or more), look at establishing a donor-advised fund. Most mutual fund companies offer this charitable-giving program.
6. Put off that mutual fund purchase.
Here’s one strategy where a little delay could pay off. Most mutual funds distribute capital gains at the end of the year, and if the fund is in a non-qualified account (meaning a tax-deferred account such as a 401(k) or 403(b) plan), that money is taxable to you regardless of when you made the purchase. If you buy the mutual fund after the capital gains distribution, you’ll not only avoid the federal income tax, but the price will usually drop, so you could get it for less.
7. Make financial gifts.
This tip won’t help you reduce taxes, but it may help shield your money from federal estate and gift taxes. For 2017, federal estate taxes kick in for individuals with estates exceeding $5.49 million. You can give up to $14,000 in non-taxable gifts this year to as many people as you like and can afford. And the gifts don’t count toward your lifetime exemption from this gift tax.
Take the next step now.
These are just a few of the year-end strategies you can use to manage your tax liability. Don’t miss out by waiting until the new year to think about your tax return. Talk to your financial adviser and tax professional as soon as possible about how you can reduce your taxes in 2017.
Kim Franke-Folstad contributed to this article.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
-
-
Stung by Netflix Password Sharing Fees? You're Far From Alone
A new streaming survey shows Netflix password sharing changes could affect a surprising percentage of American subscribers.
-
Stock Market Today: Stocks Close Lower Ahead of Key Debt Ceiling Vote
The major benchmarks spent most of Wednesday in the red as the House prepares to vote on the debt ceiling deal this evening.
-
Expecting a Recession? Seven Steps to Help You Power Through
Instead of panicking, consider opportunities to add flexibility and resilience to your financial position. These steps can help you enter a potential recession from a position of strength.
-
What Is Indexed Universal Life Insurance and How Does It Work?
This permanent life insurance provides a death benefit to your beneficiaries but also offers a cash-value component that can grow over time.
-
How to Fail as a Leader
The authors of the new book 'Real-Time Leadership' outline the traits of effective leaders (kindness is key) and what will ensure a leader’s failure.
-
Are You Worried About Running Out of Money in Retirement?
Planning that integrates income annuities can help alleviate the No. 1 fear of retirees, even in worst-case investment scenarios and when living way beyond your life expectancy.
-
Three Ways Charitable Organizations Can Boost Public Trust
Silicon Valley Bank’s collapse adds to distrust in institutions, and that’s affecting nonprofits and grantmakers. Fresh expressions of transparency can show that the nonprofit sector is different.
-
In Forex Trading, Do Chess Players Have an Edge?
Both require a significant amount of strategy and the ability to recognize patterns, manage risk and control impulses.
-
How, Like Indy, to Outrun the (Retirement) Boulder
To get to a comfortable retirement, ordinary people often fight larger forces, like the characters in Steven Spielberg movies. Here’s how you can fight those forces.
-
Beware the Retirement Hazard Zone: Those Years Right After Age 59½
The decisions you make in the four to five years right after you hit that pivotal age can have a big impact on the rest of your retirement.
