End Of Year Tax Strategies


Each year, I am asked what one should be doing at the end of the year to decrease their tax liability for the year. The following is a list of items you may want to consider:

1. Consider paying in this year larger itemized deductions that you may have waited to pay until the next year such as medical bills, mortgage interest, education, and child care costs.

2. Contemplate converting nondeductible interest loans such as an automobile loans or credit card debt into a deductible home equity loan. You would get the extra benefit of a lower interest rate as well.

3. Review your stock and mutual fund portfolio to determine if it is advisable to recognize capital losses to offset capital gains, plus $3,000 of ordinary income.

4. You may have stocks that have decreased in value this year and it may be advisable to sell them at a loss and donate the proceeds to charity allowing you to claim both a capital loss and a charitable deduction.

5. Consider making changes to the funding or your retirement plan in light of the additional funding opportunities available .

6. Consider setting up an education savings account, which offers significantly enhanced tax-savings opportunities . Please see my article regarding other education tax incentives.

7. If your employer allows you to contribute pre-tax dollars for medical expenses not covered (medical savings account), make contributions as necessary.

8. If you are self-employed, make contributions to your self-employed retirementplan and make any capital asset purchases which would qualify as a “Section 179” expense before 12/31.

9. Consider converting a traditional IRA to a Roth IRA, also establish if it makes sense to reverse the conversion, especially if your portfolio has declined.

10. Defer the exercise of stock options into the next year.

11. Pay the final installment of state-estimated tax.