6 Ways to Be Proactive With Your Year-End Planning


Too often, year-end planning is left to the last possible minute. But procrastination can mean missing out on ways to save on taxes. As we enter the fourth quarter of the year, it’s time to start thinking about ways you can reduce your tax liability:

1. HSAs and FSAs

Contributing to a Health Savings Account (HSA) or a Flexible Savings Account (FSA) can provide you with an extra tax deduction. If you are eligible for the HSA, you also can let your money grow tax-free, as it rolls over year to year. Making an extra contribution if you haven’t reached its limit can reduce your tax bill. Your FSA is a different story. Your money won’t roll over year to year. You can claim a tax deduction for your contributions, but you also need to plan your health-care spending so that you use the money in your FSA before you lose it. Now is the time to schedule doctor appointments, dental work and vision visits so you can use the money in your FSA.

2. Charitable Contributions

Reduce your taxable income by making a contribution to a good cause. But make sure to get the appropriate documents —cash contributions must be accompanied by either a receipt from the charity or a bank record. You also can donate goods to a charity and deduct their current market value. Again, ask for a receipt from the charity, and itemize the goods you donate to provide records to the IRS.

3. Points for Refinancing Your Mortgage

If you’re planning on refinancing your mortgage, now is a good time to complete the transaction. If you pay points (one point equals 1 percent of the total loan amount), they might be deductible from your income, reducing how much you pay. If you itemize, don’t forget you can deduct the interest you pay on your home loan.

4. Education Contributions

Are you using a 529 college savings plan or a Coverdell Education Savings Account (ESA) to help a child or grandchild with university costs down the road? If so, you might be eligible for a state tax break. You won’t receive a tax break on your federal income tax bill, but you could lower your state bill. Check with your state’s tax office to determine whether you can claim a deduction for your contribution. Though the death payout is its primary benefit, the cash value of whole life insurance could be an alternative college funding option.

5. Investment Loss Harvesting

Investors who realize capital losses can claim a deduction. If it’s time for you to rebalance your portfolio or sell some losing investments, you can turn those losses into a tax deduction. You can use your capital losses to offset your capital gains and then apply any extra losses — up to $3,000 — to reduce other income. If your losses exceed that amount, it is possible to carry the excess forward to another year.

6. Business Expenses

If you own a business, now is the time to deduct items essential to running your business. Equipment, business travel, office supplies and other items can reduce your business income and lower your tax liability. Look ahead to what your business needs and make plans for those purchases.