5 End of Year Strategies to Boost Your Tax Savings

By TaxAct

You still have time to maximize your refund or reduce your tax bill before it’s time to complete your 2019 return. Follow these five steps to boost your tax savings before the end of the year.

1. Make the most of your employer’s tax-free benefits.

If you have a flexible spending account (FSA) balance, find out if your employer has implemented the new rule allowing a carryover of up to $500 in excess funds.

If not, use the remaining balance by Dec. 31 so you don’t lose that tax-free money.

Maximize the tax benefits for retirement savings by contributing up to $19,000 to a 401(k) and $6,000 to your traditional and Roth IRAs ($7,000 for 50 and older).

Unlike most tax benefits, IRA contributions made up until the tax filing deadline can count toward 2019 totals if you designate them for that purpose. Anything contributed after April 15 automatically goes toward the next year.

Even if you can’t reach the contribution limits, contribute enough to maximize your employer’s match.

Additional retirement tax benefits are also available for employees with lower incomes, freelancers, and sole proprietors.

2. Be charitable

Donating cash, clothing or a car by Dec. 31 can reduce your taxable income if you itemize deductions. Additionally, on the heels of tax reform, you may want to consider increasing your charitable contributions to cover next year’s donations as well.

Doing so will allow you to take advantage of the deduction on your 2019 return. With the increase in the standard deduction, you may not have the chance to deduct those contributions if your total itemized deductions aren’t over the new amount. Combining contributions for two years may bump you over the standard deduction threshold more easily than if you split the donations between years.

3. Pay your property taxes or mortgage payments early

Homeownership offers many tax breaks, but to maximize them, you need to make some moves by Dec. 31 to lower your tax bill.

If you haven’t reached the maximum amount of your home mortgage interest or real estate tax deduction, pre-pay your January mortgage payment or your 2020 state or local property taxes before Dec. 31.

Additionally, due to tax reform, you may want to consider pre-paying all of your 2019 property taxes as a result of the $10,000 cap on deducting state and local taxes. If you think your state and local tax deduction will be higher than the $10,000 cap in 2019, deducting your property tax amount now will allow you to still take advantage of those tax benefits.

This same strategy applies to student loan payments.

If you haven’t reached the deduction limits, pre-pay spring tuition or your January student loan payment before Dec. 31 to lower your tax bill.

4. Assess your gains and losses.

Capital gains can be offset by capital losses to reduce your taxable income.

You can also deduct up to $3,000 ($1,500 if married filing separately) of excess losses for 2019.

Losses in excess of that amount can be carried forward to 2020.

When deciding whether to keep or sell assets, consider your tax brackets (find out which tax bracket you are in by using this calculator), mix of short- and long-term assets, and investment goals.

Keep in mind:

  • Capital gains are generally taxed at lower rates than other income, but short-term gains are taxed at a higher rate than long-term gains.
  • Short-term gains are taxed at your highest tax bracket, so consider selling short-term losses to offset short-term gains. If all gains are short-term, look at selling long-term losses.
  • Wash sale rules prohibit a loss if you buy the same stocks or securities within 30 days of selling.

5. Forecast your tax outcome now

TaxAct is always up to date with the most recent tax law changes. You can use the TaxWatch feature in each product to see how the changes may impact your tax situation throughout the year.

Import last year’s return and answer easy questions to preview your federal and state taxes. The program will notify you if your deductions or credits are included in the updated tax legislation.

All 2019 returns can be completed and e-filed using one of TaxAct’s DIY solutions starting in early January. TaxAct will transmit early returns to the IRS as soon as the agency opens its doors for business.

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