Spring is a long way off, but you can still get a jump on your taxes. Here are 5 ways you can decrease your tax bill next April:
Increase 401(k)/403(b) Contributions to Decrease Your Tax Bill
Bunch Your Expenses
If you have outstanding, un-reimbursed expenses from your employer, it might help you to pre-pay them before the end of the year. Business owners should pre-pay them before the new year, because it allows them to deduct those expenses from this year’s taxes.
Sell Your Losses
If you plan to rebalance your portfolio, look at some of your investments that have losses. It might make sense to dump them and be able to deduct them for the year.
Do you get a tax refund every year? You might want to consider a Roth conversion. Instead of getting money back and investing it in a taxable account (or spending it,) you can gain some additional money into an after-tax Roth.
Large Buyout or Large Bonus
Did you receive a buyout or a large bonus this year? You may want to pay estimated tax, especially if your state has an income tax. It may help you avoid a tax penalty for an underpayment, and it could also help you avoid or reduce your alternative minimum tax.
If you choose to make estimated payments, you would make them the same year you received the buyout or bonus. So reducing your tax liability this year will have a greater impact than it will next year. Plus, an underpayment of 100% paid from the previous year will incur a penalty.