September already? One minute we were sipping lemonade on a hot, lazy July day and suddenly the end of the year is barreling toward us at warp speed. Thankfully, tax time is still a speck in the distance….right?
Not really. September is a critical month to re-address your tax situation so you still have time to identify opportunities and put strategies in place BEFORE the end of the year. While you should seek assistance from a qualified professional if you are a business owner or have substantial wealth, there’s a good chance that there’s at least one simple item from the list below that you can employ now to save taxes later:
Know the income thresholds
Take a look at your most recent paycheck and estimate where your income should be at the end of the year. Be sure to include both spouses, if married, and any investment and interest income. Take a best guess at deductions, based on last year’s return. You can find the income brackets at www.irs.gov, which will give you an indication if you’re approaching a higher tax bracket and how deductibility of IRA’s and other tax-saving incentives will be impacted.
Reduce taxable income
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Time gains and losses in the same year for maximum benefit
Obviously, you can’t time the market completely, but if you already know you will have a sizeable gain or loss in a particular year, proactively look for the opposite transaction to balance it out and make it happen before the end of the year. To offset high income, consider selling that losing stock you’ve been hanging onto, hoping it will come back. The tax benefit may be the only redeeming quality it will produce. If you know you have a loss of some kind, look to make a reality some of the gains you’re seeing on investment statements.
As with any financial transaction, none of these decisions should be made in a vacuum. While they may lower your tax, there may be other reasons a particular strategy isn’t right for you. Let us take a look at your whole situation to put together a plan. You’ll rest easy at tax time, knowing you already did the hard work.
