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5 Tax Moves To Make Before Year End

Author: Christopher Jackson

The end of the year is just around the corner, and before you know it you'll be gearing up to pay your annual tax bill. Nobody wants to pay more than they have to in taxes, so you should be mindful of your tax implications (for more, read Tax Deductions You May Be Missing.) After all, there are many steps you can take to ensure that you don't pay more than your fair share to Uncle Sam. Here are five moves to consider before the end of the year.

1. Postpone Receiving Income That Will Push You Into A New Tax Bracket

If you're a consultant, self-employed or just have a say in when you receive your salary, one way to lower the amount you'll owe in income taxes is to defer income into the following year. Let's say you're currently hovering near the high end of the 28% bracket. If a client payment at the end of December could push you into the next higher tax bracket, you'll want to hold off on accepting the payment until January (for more, read What's The Difference Between a Tax Rate And a Tax Bracket?). And if you work for an employer and are expecting a bonus at the end of the year, see if your company can wait until after New Year's to pay you.

2. Boost Your Charitable Giving

One way to be generous and also get a tax break is to donate money by the end of the year. The Internal Revenue Service lets you deduct charitable contributions to nonprofit groups that the IRS signs off on. Typically these are charitable, religious and educational institutions. Your contributions can't exceed 50% of your adjusted gross income and you have to itemize on your tax return to take full advantage of all your charitable giving. To write off any cash-based charitable gifts, make sure to hold on to the canceled check, bank record or receipt from the charity to back up your claim in case you're audited (see Tips On Charitable Contributions: Limits and Taxes.)

If you're donating something non-cash-related, like an appreciated stock or a piece of real estate that has gone up in value, the tax savings will be even bigger. That's because the IRS lets you deduct the full fair market value of the donation, which means you don't have to pay taxes on any gains.

3. Engage In Tax Loss Harvesting

It's frustrating when a taxpayer owns a stock that appreciates in value, only to see a big portion of the gains get wiped away because of the capital gains tax hit they face. One way to prevent that from happening is to engage in tax loss harvesting. With this strategy, you pair a winning stock with a losing stock and sell them both at the same time. The losses from the losing stock should hopefully offset the gains from the winning stock, creating a non-taxable event. In order to employ this strategy you have to have owned the stocks in question for more than 12 months. You won't be able to buy the same stock for 30 days after selling, so if you think the stock will go higher in the near term, tax loss harvesting may not be right for you, or at least for that particular security. (Read more in: Pros And Cons Of Annual Tax-Loss Harvesting.)

4. Itemize Instead Of Taking the Standard Deduction

Many people take the standard deduction on their tax return instead of itemizing their expenses, such as home mortgage interest, property taxes, medical expenses and charitable donations. But if your expenses exceed $6,300 for singles or $12,600 for married taxpayers filing jointly in 2015, then you likely could save more money by itemizing them. According to TurboTax, one out of every four taxpayers will benefit financially from itemizing deductions.

5. Put More Money Into Your Retirement Savings Plan

The IRS allows workers to contribute $18,000 to their 401(K) for 2015 and $24,000 if they're 50 or older. That investment is deductible, which means the income that you pay taxes on will be lower. Not to mention that often employers match a portion of your contributions, which is essentially free money to you. If contributing the maximum amount is out of the question, try to at least meet your company's match so that you can take full advantage of the benefit.

The Bottom Line

Nobody likes to see their earnings go to Uncle Sam but you can't avoid taxes entirely. That said, there's no reason why you can't take full advantage of all the tax deductions the government allows you. Deferring income, pairing losing stocks with winning ones, contributing the maximum amount to your 401(K), itemizing your deductions and boosting your charitable giving are all good ways to reduce your taxes without running afoul of the IRS.

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