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Consider these moves now to minimize tax in the New Year

The final stretch to the end of the year is upon us. There are important decisions to make between now and December 31, about such issues as insurance coverage and health savings accounts for 2018, for example. It’s also the time to handle last-minute tax issues that could save you big bucks.

Do you have any underperforming stocks?

Some investments pay off in spades. An initial investment of a few hundred dollars could turn into millions (think Apple stock from the 1970s). Others – like automotive stock – were at one point profitable but now consistently struggle. 

If your investments are losing money, consider whether to cut your losses. The IRS recognizes “tax-loss harvesting,” which basically allows capital gains from profitable ventures to off-set investment/stock losses. The timing of the gains and losses is important, as like-kind offsets get first priority.

  • Without like-kind loss/gain pairings, other losses can be offset, as well as up to $3,000 in additional income if there are no more capital gains (additional carryover can continue to the next tax year)

Consider an extra mortgage payment

Can you make an extra mortgage payment before the end of the calendar year? This will yield a greater mortgage interest deduction in 2018. It will be profitable by itself, and might also play a role if proposed tax reforms are passed that raise overall standard deductions (and itemization becomes unprofitable).

The mortgage interest deduction isn’t on the proverbial chopping block in the tax reform proposal, but slashing other itemized deductions in favor of a higher standard deduction could still have an impact.

Take advantage of 401(k) maximums

Any amounts transferred into a qualified 401(k) reduce taxable income. The tax code allows up to $18,000 to be transferred tax-free, with an additional $6,000 allowable for taxpayers over the age of 50. This means that any amounts properly put into a retirement plan will lower overall tax liability by lowering taxable income.

These tax strategies are not appropriate for everyone, and might not be beneficial in all circumstances. To learn more about what tax scheme works for you reach out to an experienced tax attorney.

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