If you find yourself with a huge tax bill so close to the deadline, there are some tax strategies and preparations you can do to lower your income tax returns.
First, determine if your anticipated income will be higher or lower the following year. Get as may deductions as is applicable for the highest year. Your tax base is incremental which means it goes up in percentage the more money you make. Why get a deduction in a 20 percent year when you can wait and get it on a 33 percent year.
Next, pay for any deductible item before the year ends if your taxes this year require the additional reduction. If you think your income will be higher next year, wait until the 1st of January to pay it.
Invest in an IRA. The amount that you pay for an IRA is automatically deducted from your income if you qualify. Some income qualifications are applicable if you are already in a pension or have a 401K in place. You may also coordinate with your employer to change 401K deposits for the final weeks. You can either pay more if you need a deduction or pay less if you need it for next year.
If you have a long or short capital gain that you need to balance, look for a stock or mutual fund that matches, but has lost money. You can’t offset a long term capital gain with a short term one.
Do not sell stocks or mutual funds that have been in your portfolio for less than a year. It may be important to take a profit and run, but a couple of day can make a huge difference in the amount of tax you pay. If you are only a few days away from the year cut to switch a long term gain to a long term one, then simply wait.
Set up distributions form a retirement account, if you’ve just retired and do not require any funds for this year, consider taking the distribution in the following year when your income will be lower.
