You can save hundreds, if not thousands, of dollars with some simple year end tax moves. By simply contributing to tax saving vehicles or spending money now, verses after the new year, you may reap the benefits.
Here are some simple tax moves to make:
Contribute to a Individual Retirement Account (an IRA)
You can contribute up to $5,500 ($6,500 if you are 50 or older) to an IRA, in 2017. The two IRA options are the following:
- Traditional IRA – The contributed amount is free from income tax. However, you must pay tax on the contributed amount and earnings when you withdraw the money.
- Roth IRA – You have to pay income taxes up front, but when you withdraw the money, there is no tax on the contributed amount, nor the earnings. There are income limits though, so check with your accountant or financial adviser for specific details.
By contributing to an IRA, you may take advantage of the Savers Tax Credit. Check out my earlier article: Take Advantage of the Savers Tax Credit
Contribute to a Health Savings Account (a HSA)
If you have high deductible health insurance, then you may qualify for a HSA. An individual can contribute up to $3,400 a year, while a family can contribute up $6,750 (a $1,000 catch up can also be contributed by those 55 or older). These amounts are the totals of what the employer and employee contribute. With HSA’s, we have a triple tax saving advantage. The money contributed is free from income tax, the money then grows tax free and when you withdraw it, provided it is for qualified medical expenses, there is no tax then either. One strategy, I am considering, is using this as a retirement savings vehicle as well. More companies are being developed that allow HSA’s to be invested in mutual funds, however, the fees can add up, so I continue to search for the best way to do this.
Pay More Toward Housing Expenses
This applies specifically to those who have a housing allowance, which includes those in the military and full time ministry. With tax brackets being lowered in 2018, it may be to your advantage to pay more toward your home in 2017. This may be a good time to pay more toward your principle or buy a new fridge that you planned to replace soon. I won’t go into great detail concerning the tax advantages of a housing allowance, since it doesn’t apply to most, but drop a note if you’d like to discuss it further.
Sell Investments that Have Generated a Loss
Since most are probably in a higher tax bracket this year, then next, this may be a good time to let go of some losses, that can lead to deductions on this year’s tax bill.
This is one of the articles, where I need to remind you to visit with a tax professional for specific advice concerning your individual situation. I am not a licensed accountant, so I must direct you to those with certified training to address your specific situation.