How can I reduce my tax liability before the end of the year?

How can I reduce my tax liability before the end of the year?
20
Dec

If you have completed a tax projection that shows tax due, now is the time to look at ways you can reduce or defer your tax burden before the end of the year.

Where should I invest to reduce my personal tax liability?

Individual taxpayers can take advantage of various tax planning strategies. Here are a few ideas:

  • Contribute to charity. Give cash or clean out that closet and donate to a non-profit.
  • Contribute to your employer-sponsored retirement plan to maximize retirement savings.
  • Maximize contributions to your health savings account.
  • Plan payments of itemized deductions in bunches to benefit from new standard deduction rules. Bunching two years of deductible expenses within one 12-month period allows you to itemize every other year and take the standard deduction the opposite year. Ask your tax professional for detailed suggestions.
  • If your itemized deductions will not exceed the standard deduction, you may consider paying off your mortgage debt as the interest no longer will produce a tax benefit.
  • Manage your investment portfolio with tax consequences in mind. Consider whether it is beneficial to take a loss on the sale of stock to offset other capital gains income. Contribute appreciated stock to qualified charities to avoid capital gain consequences while creating a tax benefit.
  • Establish and contribute to a Section 529 qualified tuition plan. As of 2018, you can use funds from this plan to pay up to $10,000 in tuition to private elementary and secondary schools. Earnings grow tax-free and are not taxed if the money is used for qualified educational expenses.

What can I do if my business is showing a profit for the year?

If your business is profitable, it may be time to invest your profits back into your business or use them to benefit your employees and community.

A few ideas to consider:

  • Buy new business and office equipment to take advantage of new depreciation rules.
  • Set up a retirement plan for your business and employees to maximize retirement savings.
  • Contribute to charities or sponsor community events.

A discussion with your tax professional will provide additional planning opportunities.

Do you need help?

GunnChamberlain, P.L. specializes in assisting businesses and individuals with tax planning and compliance and accounting services. If you would like to discuss a tax projection, accounting system setup and analysis, or other business and individual tax and accounting questions, contact us to schedule a free consultation.