As the calendar year draws to a close, taxpayers are eager to minimize their tax liability and maximize their refund. According to tax experts, there are several key year-end moves that can make a significant impact on one’s tax bill. In this article, we’ll explore these opportunities and provide guidance on how to take advantage of them.
Deducting Charitable Donations
One of the most effective ways to reduce your tax bill is by making charitable donations. Not only do these donations qualify for a tax deduction, but they also provide an opportunity to give back to the community. For those with itemized deductions, making a large charitable donation in December can significantly reduce their tax liability. It’s essential to keep receipts and documentation for these donations, as they will be crucial in supporting your tax deductions.
Harvesting Investment Losses
Investors can also take advantage of tax-loss harvesting to reduce their tax liability. This involves selling securities that have declined in value and using the losses to offset gains from other investments. By doing so, investors can minimize their capital gains tax liability and reduce their tax bill. Tax-loss harvesting can be a complex process, so it’s recommended that investors consult with a financial advisor to ensure they are taking advantage of this strategy effectively.
Accelerating Charitable Remainder Trusts
Another strategy for reducing tax liability involves accelerating charitable remainder trusts. These trusts allow donors to give a lump sum to charity and receive a tax deduction in the same year. By accelerating these trusts, donors can claim the tax deduction in the current year, rather than spreading it out over several years. This can result in a significant tax savings, especially for those with high incomes.
Bunching Medical Expenses
For those with high medical expenses, bunching these expenses into a single year can result in significant tax savings. By combining medical expenses into a single year, individuals can take advantage of the 10% of adjusted gross income (AGI) threshold for medical expense deductions. This can result in a substantial tax deduction, especially for those with high medical expenses.
Making HSA Contributions
Health Savings Account (HSA) contributions are another opportunity to reduce tax liability. Contributions to HSAs are tax-deductible, and the funds grow tax-free. By contributing to an HSA, individuals can set aside funds for medical expenses while reducing their tax bill. It’s essential to note that HSAs are only available to those with high-deductible health plans, so it’s crucial to ensure you meet the eligibility requirements before making contributions.
What to Watch Next
As we head into the new year, several tax changes are on the horizon. The Inflation Reduction Act, for example, has introduced new tax credits for clean energy investments. Additionally, there are plans to increase the Earned Income Tax Credit (EITC) for low-income workers. Taxpayers should stay informed about these changes and adjust their strategies accordingly.
Conclusion
In conclusion, there are several key year-end tax moves that can significantly reduce tax liability and boost refunds. From deducting charitable donations to accelerating charitable remainder trusts, there are numerous opportunities for taxpayers to minimize their tax bill. By taking advantage of these strategies, taxpayers can ensure they are making the most of their tax situation and setting themselves up for success in the new year.
