November probably isn’t the month where you often think about taxes. After all, we have 6 months until April 15th rolls around again.
None of us like paying taxes. We do appreciate some of the benefits those tax dollars provide us, but that still doesn’t make the tax paying process an enjoyable experience. However, it is a matter of integrity to follow the law of the land and pay what you are required to pay. Your integrity isn’t worth selling to save a few dollars on your taxes.
That said, I think it is also true that it is only good stewardship of the money that God has entrusted us with to use those same laws to reduce our taxes in any legal way we can. By taking a little time now to look at some year end tax considerations, you might be able to save yourself some money come April.
Pull out last year’s tax refund and compare with your most recent pay stub. How does your income compare with last year? How does the total taxes you have paid this year compare with the taxes you paid last year? If you notice any serious changes it could signal a surprise come April.
Do you have investments in non-retirement accounts that have lost money this year? It might be wise to sell them and them re-invest the money. You can use that realized loss as a deduction on your taxes in April.
If you are expecting to have a large tax bill in April, one way to reduce it is to make some extra deductible contributions to your church or other favorite charity.
Pre-pay your January mortgage
Unlike rent where you are usually paying for the month to come, with mortgage payments your statement is usually paying the previous month’s interest. Therefore, if your mortgage payment is due in early January consider paying it before the end of the year so that you can deduct that mortgage interest.
Max out retirement plans
If you have a 401k or IRA that is funded with pre-tax money, consider maxing out those investments for the year. This will lower your taxable income for the year as well as giving a nice little bump to your retirement savings.
If you are self-employed or have an employer that allows it, consider ways to defer some of your income until after the 1st of the year. For example, if you are self employed you might hold off billing clients until later in December so that the income will come in next year.
Be careful of minimum required distributions
If you are 70 1/2 or older and have a traditional IRA or 401K, be aware of the minimum required distribution. Starting in the year you turn 70 1/2 traditional IRA’s have an IRS mandated required minimum distribution. If you fail to withdraw this amount before the end of the year, you will face a 50% excise tax on the amount you did not take out. Better to withdraw the required amount and pay the income tax than face a 50% tax penalty.
Fund your Health Savings Account
If you have a qualifying health insurance plan and have a health savings account, maximize your yearly contribution.
Examine last year’s deductions
Take a look at the deductions that you claimed last year. Is there anything that you have forgotten that you might be able to take advantage of this year?
Talk to a professional
In any case, it is wise to consult with a tax specialist or an investment adviser who is familiar with your situation and can determine how to best apply the tax law to your advantage. They deal with these laws on a daily basis and are best qualified to help you maximize your potential tax deductions.
One final caveat. Most of these suggestions only apply if you normally itemize your tax deductions.
No one likes paying taxes, but spending a little time before the end of the year making sure you have maximized all potential deductions might save you from an unpleasant surprise come April 15th.