When tax season begins, most taxpayers are asking the same question: “How can I reduce the amount I owe in taxes?” However, the best time to ask this question is not after you begin receiving your tax documents in 2020—it’s before 2019 even ends. Most of the ways you can reduce your tax liability must be done before that ball drops on New Year’s Eve. So, if you’re hoping to reduce your 2019 tax liability, here are a few things to consider doing before the year ends.
Do Some Tax Planning
One of the most effective ways to reduce your tax liability is with proper tax planning. Meeting with a CPA to go over your taxes allows you to get professional input on the most effective ways to reduce your taxes for the year. The vast majority of options for reducing your taxes require you to take action before January 1st. By utilizing a Provo tax planning service, you can plan ahead and decide what actions you will take that will give you the most benefit when you file next year.
Give to Charity
The holiday season is the most common time of year for people to give to charity. In fact, 30 percent of donations to charities are made during the month of December. But, in addition to being a great way to get in the holiday spirit and give back, giving to charity is also a good way to get a last-minute deduction on your 2019 tax return. All qualifying charitable donations are fully tax deductible; you’ll just want to make sure you’re donating to an eligible non-profit organization.
You should also know that you can deduct far more than just cash donations to charities. At this time of year, there are many charity efforts that you can donate to, including food drives, toy drives, and even charities that take donations of used vehicles. You can deduct the value of any and all of these items on your 2019 tax return. Just make sure you get a receipt for any donations you make, if possible. If, for whatever reason, you cannot get a receipt, be sure to keep a detailed personal record of what you donated, when it was donated, what organization you donated it to, and the value of the items.
Remember, these donations have to be made on or before December 31st if you want to deduct them for 2019.
Sell Unprofitable Stocks
If you have any stocks in your portfolio that just aren’t turning a profit, you can sell them at a loss and receive a tax deduction for you troubles. While you would probably much rather sell all your investments for a considerable profit, every investor knows that’s not always possible. So, if you’ve got some stocks in your portfolio that aren’t giving you the return you’d hoped for, they can be used as a last-minute way to get a tax deduction. Just make sure that you consult with your CPA or financial advisor on this first.
Contribute to Your Retirement
Contributing to retirement accounts every year is more than just smart financial planning; it’s also smart tax planning. Contributions to qualifying retirement accounts are tax deductible, so they’re a great way to reduce your taxable income while hanging onto your hard-earned money for future use.
One of the fastest ways to get a large tax deduction is to contribute to your IRA. IRAs have a maximum contribution amount of $6,000 per year (or $7,000 per year if you’re 50 or older) per person. Additionally, you have until April 15, 2020, to make these contributions while still deducting them on your 2019 tax return. This gives you a little extra leeway so that you can get those funds together to get a nice, large deduction on your return. Keep in mind that depending on your income level and if your place of employment offers a retirement account, an IRA may not provide a tax deduction.
You can also contribute to your 401k to receive another deduction on your return. However, these contributions do need to be made by the end of the year, so don’t expect to have the extra time that you have with IRAs to get the deduction for your 401k contributions.
If you’re looking for other ways that you can reduce your 2019 tax liability, now is the best time to utilize our Provo tax planning service. Contact Biesinger & Kofford CPAs today to schedule an appointment with one of our expert tax planners. We’ll help you to determine what actions you can take to optimize your tax return and receive the best possible outcome when you file.