Year-End Tips to Help You at Tax Time

Year-End Tax Tips To Help Boost Your Return

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Take advantage of smart year-end financial moves that can help reduce your income tax liability when you file next spring. Bernard Kiely, CFP, CPA, dean of the National Association of Professional Financial Advisors (NAPFA) University School of Taxation, offers these tips:

1. Donate to qualified charities and organizations: You can generally deduct contributions of up to 50 percent of your adjusted gross income to qualified charities and organizations if they're made before December 31. Consider:

  • Donating stock. You can generally deduct the fair market value of donated stock.
  • Using a community foundation. You direct the money, and the foundation pays it out over a period of years. You can generally deduct the donation the year you paid the foundation.

Check out eight tips for deducting donations.

2. Contribute to your 401(k): Add pre-tax money to your 401(k) before the end of the year to reduce your taxable income.

3. Sell losing stock: Sell losing stock before year's end to deduct the capital losses against any capital gains you realized, and reduce your taxes on the money you earned from successful stock. Once you've offset your capital gains, you, as an individual, can generally use any excess losses to reduce ordinary income up to an annual limit of $3,000.

Learn 10 facts about capital gains and losses.

4. Focus on long-term capital gains: "A short-term capital gain is a stock or mutual fund you've bought and sold in less than one year," says Kiely. Long-term capital gains are taxed at fixed interest rates. Short-term capital gains are taxed at your ordinary income tax rate. Use the time now to evaluate your financial portfolio and shift more funds to investments that offer longer-term tax savings.

5. Fund a Coverdell Education Savings Account (ESA): Many states allow residents to deduct contributions made to an education savings account. In general, the designated beneficiary of a Coverdell ESA can receive tax-free distributions to pay qualified education expenses.


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