Three ways to start your tax planning now

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Donna Mullen, CPA
Donna Mullen, CPA

It is said that there are only two things certain in life – death and taxes.  So if you are reading this, you haven’t reached death yet but you are probably paying taxes.  No one likes to think about taxes, but tax planning is something that should happen continually, and not just in December.  Here are some tax planning strategies you can start to consider.

Harvesting losses.   What do we mean by that?  If you have an investment account that is subject to income taxes every year you are probably invested in some stocks or mutual funds.  Since this has been a challenging year for the stock market, consider selling off some of your gains to capture them and selling some of the losers to offset those gains.  That is harvesting.  The IRS tax code says you can only subtract $3,000 of losses each year after gains have been offset.  So let’s say you have $50,000 of gains you can capture from your investments, and you have $35,000 of losses.  You would only pay taxes on $15,000 of the gains as the losses would offset your gains.  What if instead your losses were $55,000? You have $5,000 more in losses than gains so you can only deduct $3,000 for this year and carry over $2,000 for next year.

Stacking itemized deductions.  This takes planning for two years at a time.  Let’s assume you are below the phase out levels for itemized deductions.

  • If you have a larger amount of income this year than usual, you could consider making state income tax estimates by December 31st to count for the current year.
  • Consider making extra charitable contributions before December 31st.
  • If you usually pay your real estate taxes in January through July, consider paying most of them in December.  Try to leave $2,500 of real estate taxes on your personal residence for the following year so you will get the Wisconsin school property tax credit.  Remember that credit is allowed the year the property taxes are

Increase retirement plan contributions.  If you are not already contributing the maximum to retirement plans, consider increasing your amount contributed for the last few months of the year.  Remember that employer sponsored retirement plans (401k, 403b, Simple IRA) can only have your contributions through payroll deductions.  If you decide in December, it may be too late to have enough withheld from your paycheck to be able to contribute the maximum amount.

Please consult with a tax advisor for specific strategies for your situation.  If you have questions, contact us. We’d be glad to help.