Among the items on our to-do list: Trim your 2019 tax bill by pruning your portfolio and giving to charity. Boost your retirement-plan contributions. Cash in credit card rewards. We also suggest moves that will boost your bottom line in 2020 and beyond. Take a look.
Harvest Your Losses
You’ll trigger a capital gains tax bill if you sell winners in a taxable account (but not in a tax-deferred account, such as an IRA). But you can sell any stocks or mutual funds that have fallen from the price you paid and use the losses to offset your profits in other investments.
Line up your short-term losses with short-term gains, and do the same with long-term losses and gains. If losses exceed your gains, you can use up to $3,000 of losses to offset ordinary income. Any losses exceeding that can be rolled over—up to $3,000 per year—to future years.
Watch Out for Capital Gains Distributions
If you’re shopping for mutual funds for a taxable account, check the fund’s website before you buy. Otherwise, your investment could saddle you with a big tax bill.
During the month of December, many funds pay out dividends and capital gains that have built up during the year. If you own shares on what’s known as the ex-dividend date, you’ll have to pay taxes on the payouts, even if you reinvest the money.
Before you invest in a fund, call the fund company or check its website to find the date and estimated amount of year-end distributions. The estimates are often reported as a percentage of a fund’s current share price. A distribution of 2% to 3% of the share price probably won’t cause you a lot of tax headaches, but if the fund estimates it will pay out 20% to 30% of the share price, wait until after the distribution to buy—or consider investing in a different fund.
Check Your Withholding
The 2017 tax overhaul lowered tax rates across the board, but it also scrapped some popular tax breaks. As a result, some taxpayers who were accustomed to receiving a refund ending up owing the IRS when they filed their 2018 tax return.
If you were part of that band of disgruntled taxpayers, you may be able to take steps between now and year-end to avoid another April surprise. Use the IRS tax-withholding estimator tool to determine whether you need to file a new Form W-4 with your employer and increase the amount of taxes withheld from your paycheck between now and year-end. You’ll need your most recent pay stub and a copy of your 2018 tax return to help estimate your 2019 income. Because only a few pay periods remain between now and the end of the year, reducing the number of allowances you claim may not make enough of a difference in your withholding to affect your tax bill. Instead, go to line 6 on your W-4 form and fill in the dollar amount you’d like to have withheld.
Pay Some Bills
Unless your finances have changed significantly, you probably have a pretty good idea of whether you’ll itemize or claim the standard deduction when you file your 2019 tax return. If you plan to itemize (or you’re close to the threshold), now is a good time to prepay deductible expenses, such as mortgage payments and state taxes due in January.
Review Your Medical Bills
In 2019, you can only deduct unreimbursed medical expenses that exceed 10% of your adjusted gross income (in 2018, the threshold was 7.5%). That puts this tax break out of reach for most taxpayers. But if you had very high medical expenses this year—due to a major illness, for example—you may qualify.
And there’s still time to schedule appointments and procedures that will increase the amount of your deductible expenses. The list of eligible expenses includes dental and vision care, which may not be covered by your insurance.
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