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6 Tax Planning Tips for End of Year

Planning your taxes before it is time to file will bring you a number of benefits. It will give you adequate time to develop business tax strategies and reduce your tax bill. Lack of planning always leads to a hefty tax bill as well as invites IRS trouble. Whether you are a business, a higher-income individual or a lower-income individual, you should begin planning your taxes as the end of the year draws near. For successful tax planning, you will need to have expert knowledge of tax laws and stay above the new changes in tax policies.

Here are some of the most useful tax planning tips for the end of year to help you to cut your tax bill for next April.

1. Check Your Paycheck Withholding

If you ended up with a big tax bill this year, you should definitely take some essential steps to avoid it the next time.

Making errors in the W-4 form can lead to an unexpected tax bill. If you plan to avoid IRS trouble, you should not forget to withhold the right amount. The IRS Tax Withholding Estimator is the tool you should use to check the right amount of paycheck withholding as well as calculate your tax refund amount. Using this tool, you will be able to discover how much additional withholding you mention on Line 4(c) of Form W-4. Therefore, one of the most important year-end tax planning tips is to check your withholding and then complete your W-4 form.

To find out how to file a new W-4 form in a correct manner, feel free to reach out to one of our tax professionals at SCL Tax Services in and near Bronx, NY. Our tax consultants will walk you through the details properly.

2. Consider Paying Your Bills Now

If there are no substantial changes in your finances, it can be easy to determine whether you should use itemized deductions or standard deductions when you file your income tax return. In the case of itemized deductions, deductible expenses should be pre-paid now. This is a highly effective tax planning strategy Bronx Tax Services suggests taxpayers should apply.To make the most of your itemized deductions, you should review your medical bills in a proper manner. If you start to plan ahead of time, you will have enough time to review all your medical expenses including dental and vision care, which your health insurance company may not cover. Also, you should pay your property taxes and tuition ahead of time. For more information on prepaying your bills and itemized deduction and how to maximize the amount of your deductible expenses, you should seek the help of a tax professional. If you live in or near the Bronx, get in touch with one of our accountant for expert tax help.

Paying Bills Soon

3. Maximize Contributions to Your Retirement Account

Contributing to tax-advantaged retirement accounts is a good tax planning strategy to cut the tax bill. Not only are these contributions great future investments, but they are also very useful when it is time to file.

Thus, any contributions you make to your retirement accounts, such as 401(k) plans and IRAs, reduce your tax bill. There are specific limits for 401(k) contributions and IRA contributions. In addition to these, you should also maximize your contribution to an HSA, if you have one. Instead of waiting for the time when you will file the taxes, you should plan ahead of time and make the most amount of contributions to get tax deductions.

4. Take RMDs from Traditional Retirement Accounts

Not taking the RMD will cause a 50% excise tax on your withdrawn amount, as per your age, life expectancy and how much account balance you had at the start of the year. Since RMDs are regarded as taxable income, you should definitely take them from your traditional retirement accounts, if you are 72 years old or more. You should not make any delay in taking your RMDs. As soon as you reach the age of 72 years, you should collect your first withdrawal by the April 1 deadline. Missing the RMD deadline will cause you to face penalties.

Talk to one of our tax professionals and find out how exactly you should include taking RMDs as part of your tax planning strategy.

5. Convert the Assets in a Traditional IRA to a Roth IRA

One major distinction between a traditional IRA and a Roth IRA is that the latter is not subject to income taxes when withdrawn. That is exactly why Roth IRAs can play a crucial role in proper tax planning.Though there is a set of criteria that should be followed to open and contribute towards a Roth IRA, you can choose to convert the assets of a traditional IRA into a Roth IRA either in part or in whole. Any contributions you make to the Roth IRA before taxes are paid will be taxed as general income. Whether or not a Roth IRA conversion is right for you depends on your specific case. However, this certainly makes for a good end of year tax planning strategy.

To find out how a Roth IRA conversion can help you manage tax liability, talk to one of our highly experienced tax accountants.

tax planning strategist in Bronx, NY

6. Harvest Your Investment Losses

Tax loss harvesting is one of the most effective strategies taxpayers can use to reduce their tax liability. Harvesting losses refers to selling your taxable investment assets, if the assets have lost value.

Harvesting can help you deduct a maximum of $3,000 in losses. So, whether you have lost in stocks or cryptocurrency, you should definitely consider harvesting your losses in order to lower your tax liability. There are different rules for selling and rebuying the same assets again. In order to identify investment losses you can use to make up for your gains, you will need expert knowledge for tracking the tax losses and keeping a close watch on market maneuvers. So, you should seek help from an experienced tax consultant in or near your location.

Talk to a Tax Planning Specialist

Instead of waiting for the tax season to come, you should start planning your taxes before the end of the year. This will help you prepare yourself for the tax season in a highly effective manner and help you lower your tax bill as a result. If you still have a question and need the help of a highly competent tax professional, head straight to SCL Tax Services in and near Bronx.

For your free tax consultation, you can call our tax office or write us an email using the contact form on our website.

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