By Robyn A. Friedman
City & Shore Magazine
It’s the holidays – when everyone’s fancy turns to thoughts of family and friends, eggnog and latkes, celebrations and getaways. But there’s one more thing you should be thinking about now: taxes.
“Even though the year is almost over, that doesn’t mean you can’t realign your financial life to get on the right track before taxes are due in April,” says Jeremy Straub, chief executive officer of Coastal Wealth in Fort Lauderdale, a member of the MassMutual Financial Group.
Indeed, it’s not too late to review your tax situation for 2019 – or too early to start planning for 2020. Experts say there’s still time to tweak your financial situation and perhaps even reduce your overall tax bill.
One strategy Straub recommends: Maxing out contributions to your IRA or retirement plan. “Many employees will receive a year-end bonus, making it a great time to add money to your traditional IRA,” he says. “Just make sure you have the rest of your financial house in order, such as having a six-month emergency fund, and that you aren’t behind on your credit cards before putting all your eggs in the retirement basket.”
Other strategies you can take advantage of now to save money on your 2019 taxes:
- Give generously. Make charitable contributions before the end of the year, whether in cash or by donating goods such as used clothing, household items or even a vehicle you no longer need. Don’t forget to request receipts.
- Sell your losers. Mari Adam, a certified financial planner in Boca Raton, recommends selling investments in your taxable accounts (not IRAs or 401(k)s) that are worth less than what you paid. That way, you can use those losses to offset gains on other investments.
- Fill the gap. If you’re in a low tax bracket this year (perhaps you didn’t work the entire year or had other losses), take extra out of your IRA, convert money from a Traditional IRA to a Roth or squeeze some long-term gains out of your investments, Adam says. “Yes, you’ll have to pay taxes this year, but you’ll avoid even higher taxes – and higher brackets – in the future,” she says. “Most experts think taxes have nowhere to go but up in the future, so if you’re in an unusually low bracket this year, make the most of it.” Adam says she recommends this technique to clients who have stopped working but are not yet taking Social Security benefits or required IRA withdrawals, as it helps avoid even bigger tax bills down the road.
- Improve your own financial future. If you own your own business and haven’t set up a retirement plan like a Solo 401(k) or SEP-IRA, then do it now, and you’ll earn a big tax deduction. Even if you are a salaried employee, you can trim taxes by contributing to a Traditional or Roth IRA if you meet certain income requirements, Adam says.
As always, consult your tax advisor to discuss these strategies and others that might benefit you.