Last-Minute Tax Deductions Hiding in Your Closet: There is still time to lower your tax bill!
There’s no time left to procrastinate! Now is the time to make last-minute tax moves to save you some money. Here are ideas to consider:
- Sell loser stocks. Review your portfolio for stocks, mutual funds and other investments that are sitting in a loss position. If the investments are looking like they won’t be rebounding anytime soon, sell them and take advantage of the annual capital loss limit. Losses will first net against your capital gains, but the IRS will allow you to deduct up to $3,000 in excess losses against your ordinary income. Consider selling loser investments held less than one year first as they will offset short-term gains that are taxed at higher ordinary income tax rates.
- Prepay your mortgage. As an individual taxpayer, deductions are allowed depending on when you pay them. You can take advantage of this at the end of the year. If you are planning to itemize your deductions, make your January house payment in December and get credit for the mortgage interest deduction this year. That’s 13 months of interest in one year just by making the payment a few days early.
- Donate household items. You might have tax deductions hiding in your garage, closets or basement! Donations of household items and clothing are a great way to boost your charitable giving deduction. There are a few things to consider. The donation needs to be made to an eligible charity (called a 501(c)(3) organization). Documentation is required to substantiate your donation, so take a picture and get a receipt for all donations. All donations with a fair market value of $5,000 or more need a qualified appraisal.
- Fund your 401(k). All contributions to a 401(k) deferral account will decrease your taxable income. So see if your employer will allow you to increase your 401(k) contributions. The contribution limit for 2018 is $18,500 or $24,500 if you are 50 or older ($19,000 or $25,000 if you are 50 or older in 2019). Even if a late contribution change is not allowed, now is a great time to set up next year’s 401(k) contributions.
- Make a donation from your IRA. If you are older than 70½ you can make a charitable distribution of up to $100,000 directly from your IRA to a qualified charity. The distribution is excluded from taxable income, so this is a great way to donate and take advantage of the higher standard deduction. Even better, this type of distribution qualifies as a required minimum distribution.
With the increase in standard deductions, year-end moves need to be analyzed more closely than in past years.