This time of year, when holiday shopping, gift giving, and vacation planning are front and center, don’t forget: Tax Day is coming, and it’s no holiday. Take time now to consider some moves for your family that’ll save you money come April. That doesn’t mean you need to put on a green visor and pull an all-nighter at the kitchen table. These seven supersmart tax moves are relatively painless—and they’ll make your date with the 1040 much less agonizing. (One note of caution: I’m not an accountant. For specific advice for your situation, consult a tax professional.)
1. Postpone income to save on taxes and qualify for breaks. There are a few reasons that it may be to your advantage to defer some income (such as bonuses or freelance earnings) until early next year. First, you’ll simply owe less tax. Second, a lower income could allow you to claim tax breaks that phase out when your income is higher, such as the child tax credit, the student loan interest deduction, and higher education tax credits. (Also, many such breaks are on the Congressional chopping block, so they may not be available in 2018. Take advantage of them while you can.) A third factor: If you have reason to think the tax reform legislation could put you in a lower tax bracket, postponing income until next year could mean that income will be taxed at a lower rate next year. No guarantees on this one—keep an eye on the news out of Washington.
2. Sell losing stock. I have long advised investors to buy and hold onto index funds instead of individual stocks to spread their risk and take advantage of the wider market. But if you sold individual stocks this year, you might owe tax on whatever money you made. (If you’re not sure, look for “year-to-date tax activity” in your brokerage account.) You can reduce your taxes, though, by selling a losing stock (preferably one you want to part with anyway) to offset your gains.
3. Give to family. You can make individual tax-free gifts of up to $14,000 in 2017 without facing gift taxes. Maybe that means socking away money in your kid’s 529 college savings plan. Maybe it’s writing a check to your adult children to save for their own kids’ higher education. Whatever the case, act now if you plan to give generously next year as well; the limit rises to $15,000 in 2018.
4. Give to charity. Whether or not you joined in on Giving Tuesday, there’s still time for you and your family to give back this holiday season—and potentially get a tax deduction, too. org, a charity review site from the Better Business Bureau, is a good place to start. To verify that your chosen organization is a registered 501(c)(3) nonprofit, you’ll need to check with the IRS.
5. Contribute to your IRA. After you’ve contributed enough to get the employer match in your company 401(k)—a must—a tax-favored Individual Retirement Account is a great place to ramp up your retirement savings. You can contribute up to $5,500 in 2017. (You actually have until next Tax Day—April 17, 2018—to put the money in there.) These accounts come in two flavors: traditional and Roth. A traditional IRA can give you an up-front tax deduction for this year, but the money will get taxed when you withdraw in retirement. Contributions to a Roth IRA are made after tax, but money then grows tax-free for life. Note: Both traditional and Roth IRAs have eligibility requirements that are based largely on your income and marital status.
6. Gear up for gigging. If any of your income comes via self-employment—either from full-time freelancing or a side hustle—buy tax-deductible supplies and equipment while holiday sales are happening, and you can write them off next year.
7. Find tax help, if you need it—now. Before you know it, it’ll be February and you’ll be swimming in 1099 and W-2 forms. Whether you plan to DIY, use software, or hire a tax professional, start thinking ahead.
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