In the middle of all the holiday buzz, you may not be ready to think about tax season. Yet, with April’s tax deadline just around the corner, here’s how to keep more money in your pocket, and not Uncle Sam’s.
Contribute to retirement accounts
Maximize your 401(k) and Traditional IRA contributions to reduce your taxable income and possibly save on your tax bill. This is also a great way to help you reach long-term retirement income goals. If you haven’t met your maximum contribution yet, and your finances allow, calculate the dollar limit you have left to contribute. Then bump up those contributions to get as close to the max set by the IRS. For 2018, the maximum you can contribute to your 401(k) is $18,500 or $24,500 if you are age 50 and older. Traditional IRA contributions max out at $5,500, or $6,500 if you are 50 and older. Higher contribution limits are coming in 2019.
Sell off low-performing investments
“Tax loss harvesting” could be another way to lower your taxable income. This strategy works by selling investments you’ve bought (e.g. stocks, mutual funds, etc.) that are now worth less than you initially paid for them. This may help to offset possible taxes from earnings or gains on income and other investments. This can be a tricky strategy to manage on your own. Be sure to talk with a financial professional to ensure you’re making the right decision.
Benefit from HSA and FSA contributions
An HSA (Health Savings Account) is a tax-advantaged medical savings account for people with high deductible health plans. An FSA (Flexible Spending Account) is part of an employers’ benefits package. FSA and HSA contributions get made on a pre-tax basis and are used for qualifying out-of-pocket medical expenses. These contributions help to reduce your taxable income.
Consider acting on these tips before December 31.
Article provided by Local Government Federal Credit Union.
The advice provided is for informational purposes only. Contact a tax advisor for additional guidance.