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GET YOUR TAX BREAKS BEFORE THE END OF THE YEAR

September 01, 20222 min read

Take action now for any final tax breaks before the end of the year. Here are some actions to consider taking by December 31…

Charitable contributions – Donate cash and/or property (including used clothing and household items). Make sure you keep the necessary records to prove that you made the donations.

FSA spending – Use up your pretax health-care flexible spending account (FSA) contributions by spending on reimbursable medical items (including itemized medical expenses and over-the-counter medications prescribed by a doctor) or procedures not covered by insurance. Many employers now allow you to carry at least part of the balance into the new year. Check with your employer to find out if you qualify for this.

Harvesting investment losses – Sell investments for optimum tax results this year. Up to $3,000 of losses in excess of gains can be deducted from ordinary income. Any additional losses can be carried forward to future years.  Minimizing investment income can reduce or avoid the 3.8% additional Medicare surtax on net investment income for “high-income” filers.

IRA transfers to charity – Consider making a direct transfer of up to $100,000 from your IRA to a public charity if you are 70½ or older. The transfer is tax-free. This move lowers your adjusted gross income (AGI), which can reduce the portion of Social Security benefits included in your income and make you eligible for more tax breaks.

Prepaying your child’s college tuition – As long as the semester starts in January, February, or March, you can take the tuition into account when figuring out the American Opportunity Tax Credit.

Adjusting the income tax withholding – If you estimate that your withholding from pay won’t cover the taxes you’ll owe when you file your return, ask your employer to increase withholding between now and the end of the year to make up for the shortfall.

Paying local taxes early – You can get a federal tax break for prepaying your state and local property taxes and income taxes that would otherwise be paid next year as long as you itemize deductions.

Giving appreciated securities to a parent – Your parent can sell them to generate income. If your parent is in the 10% or 15% tax bracket, he/she will pay zero tax on any long-term capital gains from the sale, leaving more after-tax income in the family. This may make for a better Christmas present than even giving cash.

Important: If you are unsure about whether any of the above actions can benefit you or what other favorable steps you can take before the end of the year, call us to book an appointment for a review at 205-451-1945 or click here.

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