17 Tips for End of Year Tax Planning

It’s time for end of year tax planning! Time to get your financial house in order for tax season! It seems like every year when we do our taxes, there’s a few things we wish we would have done in December to reduce our tax bill just a little more. Sound familiar?

That’s where a little end of year tax planning results in great rewards! Here’s your list of money moves to make before the new year.

Year End Tax Moves

1. Run a preview. Purchase your copy of TaxCut from H&R Block, which I have used in the past, or Turbo Tax, early to run some estimates. When possible, I like to get my software before year end to start running projections.
2. Take your losses. As long as you have lost money on your investments, you might as well sell them and take the capital loss. Commonly referred to as tax loss harvesting, losses (that exceed gains) are capped at $3,000, but you can carry them forward into future tax years.
3. Take your gains. Once again, you can pay 0% long term capital gains if you are in the 10% or 15% tax bracket. If you are planning to sell, you might as well do it before year end if you fall in this tax bracket!
4. Bump up contributions to retirement plans. Contribute more to your 401k by the end of the year to reduce your taxable income and your tax bill.
5. Install energy efficient upgrades. Take advantage of the energy tax credit in 2009. We used ours in 2006, and there’s nothing better than a tax credit for something you were planning to do anyways. Check the product list for all eligible products and limits.
6. Prepay your mortgage and real estate taxes. Even if your payments aren’t due until January, you can pay them in December to deduct this year, if you itemize.
7. Give away your money. If you were planning to give a lot of money to someone special, utilize your yearly gift exclusion of $13,000 in 2009. More than that and you are subject to the gift tax.
8. Claim your first time home buyer credit. The $8,000 First Time Home Buyer Tax Credit can be used in 2009 if you bought a home.
9. Use your flex spending money. The use-it-or-lose it rule makes your money disappear if you don’t use it. Check your plan for the deadline to incur costs and submit reimbursement requests.
10. Skip your RMD. If you (or your older relatives) are facing required minimum distributions, don’t forget that Required retirement withdrawals are waived in 2009.
11. Plan time to sell drips. Plan ahead if you need to consolidate certificates and book entry shares from drips. I requested certificates so I could sell them for free at Zecco but I don’t think I’ll get them in time to execute the sale. If you need to make the sale before year end, consider a direct sale instead of a transfer to your broker.
12. Donate. We all know we can donate clothes, books, and household stuff to Goodwill. But dig deeper and you might be able to find more ways to donate. For example, you can donate wedding dresses and attire to take a tax deduction. Be sure to research the charity to make sure you know how your donations will be used.
13. Finalize your records. If you plan to Deduct Mileage on Your Personal Car make sure your mileage logs are complete. Remember you will save yourself time by being Organized & Prepared to Do Your Taxes Quickly!
14. Review your checklist. Last year I covered End of Year Tax Planning and Finance Checklist. The checklist comes in handy to determine what needs to be done each year to keep our finances in order.
15. Make 529 plan contributions. If your state has a deduction for 529 plan contributions, make your contribution before year end.
16. Close your IRA. If you carefully evaluated the pros and cons, and decided to Take a Loss on an IRA, close your account before year end to claim your loss on your taxes this year.
17. Do an AMT analysis. If there’s a chance that you will be subject to AMT, analyze your deductions to see if you are better off waiting to make some of the above moves.

This article was updated for 2009 end of year tax planning. The original article was published in December 2008.

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