Your holiday season might be full of social plans, shopping, and traveling, but it’s important to take time to make important financial decisions before the end of year. Even though April 15th seems far away, the decisions you make now can potentially affect your 2019 tax situation. There are strategies to help reduce your 2019 tax bill before the end of the year, so don’t forget about your finances in the midst of a busy holiday season.
Max Out Retirement Savings
If you’re looking to reduce your taxable income and save for retirement, you can contribute to a qualified retirement plan. You can contribute up to $19,000 to a 401(k), 403(b) or federal Thrift Savings Plan in 2019. And, you can contribute an additional $6,000 if you’re 50 or older. Unlike IRA contributions, 401(k) contributions must be made by the end of the calendar year to count for the 2019 tax year. This can be an important part of a plan to help minimize your taxes in retirement.
Donate to Charity Tax-Free
Once you turn 70 ½, you will most likely have to start taking Required Minimum Distributions (RMDs) from your traditional 401(k), IRA, or other qualified retirement plan. This can cause an increased tax burden in retirement, especially if you don’t need as much money as you are required to withdraw. One way to make a charitable donation while reducing your tax burden in retirement is to make a Qualified Charitable Distribution. Up to $100,000 of an RMD can be transferred directly to a charity, tax-free. Whatever you decide to do with your RMD, make sure you take it by December 31st: All RMDs except the first one are due by the end of the calendar year.
Pay Education Costs
A practical gift for a student is to help with tuition costs, and there are a number of tax-advantaged ways you can do this. One is to use the American Opportunity Tax Credit and prepay tuition costs by the end of the year. If your modified adjusted gross income as a single filer is under $160,000, or under $180,000 as a couple, you can take advantage of this tax credit worth up to $2,500 per qualifying student. Even if the semester’s tuition isn’t due yet, you can prepay it by December 31st to have the tax credit count for the 2019 tax year.
If you’re looking for strategies to help potentially reduce your tax bill this year and for long-term, the professionals at O’Donnell Financial Group can help by looking at all aspects of your financial situation. We can look at your retirement income needs, tax-advantage accounts, and deductible expenses to create a plan that helps to take your overall tax burden into account. If you’re interested in learning how to help reduce your tax bill this year and throughout retirement, come in for a complimentary financial review.