Whether you are having a good year, rebounding from recent losses, or still struggling to get off the ground, you may be able to save a bundle on your taxes if you make the right moves before the end of the year. Below are 8 year-end tax tips to consider:
- Defer your income- Income is taxed in the year it is received, but why pay tax today if you can pay it tomorrow instead? It’s tough for employees to postpone wage and salary income, but you may be able to defer a year-end bonus into next year, as long as it is standard practice in your company to pay year-end bonuses the following year. If you are self-employed or do freelance or consulting work, you have more leeway. Delaying billings until late December, for example, can ensure that you won’t receive payment until the next year.
- Take some last-minute tax deductions – Just as you may want to defer income into next year, you may want to lower your tax bill by accelerating deductions this year.
- Beware of the Alternative Minimum Tax- Sometimes accelerating tax deductions can cost you money… if you’re already in the alternative minimum tax (AMT) or if you inadvertently trigger it.
- Sell loser investments to offset gains- A key year-end strategy is called “loss harvesting,”—selling investments such as stocks and mutual funds to realize losses. You can then use those losses to offset any taxable gains you have realized during the year. Losses offset gains dollar for dollar.
- Contribute the maximum to retirement accounts- There may be no better investment than tax-deferred retirement accounts. They can grow to a substantial sum because they compound over time, free of taxes.
- Avoid the kiddie tax- Congress created the “kiddie tax” rules to prevent families from shifting the tax bill on investment income from Mom and Dad’s high tax bracket to junior’s low bracket. For 2025, the kiddie tax taxes a child’s investment income above $2,700 at the same rates as the parents.
- Check IRA distributions- You typically have to start making regular minimum distributions from your traditional IRA by April 1 of the following year in which you reach age 72 (73 if you reach age 72 after the end of 2022 and 70 1/2 if you reached 70 1/2 before January 1, 2020). Failing to take out enough triggers one of the most draconian of all IRS penalties:
- Watch your flexible spending accounts- Flexible spending accounts, also called flex plans, are fringe benefits that many companies offer that let employees steer part of their pay into a special account, which can then be tapped to pay for childcare or medical bills. The advantage is that money that goes into the account avoids both income and Social Security taxes. The catch is the notorious “use it or lose it” rule.
At FSL Tax and Accounting Services, we’re passionate about helping people and businesses maximize income and minimize taxes. Get started on your path to financial success. Call 678-702-7218 or complete the online form to discuss your specific needs and any questions you may have.
