Get Ahead in Your Personal Injury Case

Four Mistakes That Could Increase Your Tax Liability At The End Of The Year

18 December 2019 by Kenneth Pierce

Taxpayers should be aware that tax season is just around the corner as the year draws to a close. It's important to be thinking about taxes in the last few weeks of the year so that you can use a few clever tactics to bring down your tax liabilities for your next tax return.

Unfortunately, a lot of taxpayers make end-of-year mistakes that increase their tax liability. The following are four mistakes you should avoid now to minimize your tax liability when you file once the tax season begins:

Taking income this year instead of next year

It might be a good time to defer some of your income for the rest of the year. If you had a particularly good year this year and you made enough to possibly go up a tax bracket, you might want to defer income until next year to keep your income lower for this year. 

If you make less money next year, you can stay in the same tax bracket both years and avoid having to pay a higher percentage of your income in taxes either year. 

Holding on to losing investments rather than harvesting the loss now

If you have some capital gains or investment income for this year, you might want to sell some investments that have lost money to reduce the amount of investment income you have to pay taxes on. This is a year-end strategy that's known as "loss harvesting."

You can deduct your losses dollar for dollar from any gains you have. This can help to keep your tax liability under control if you've earned a lot in investments and you don't want your tax bill to be extremely high.

Waiting to pay a tuition bill

If you have a tuition bill to pay for yourself or a dependent, it might be a good idea to pay it before the end of the year. That way, you can use any tax credits you get for tuition payments on your next tax return. 

Neglecting to contribute to retirement accounts

If you have a retirement account such as an IRA or a 401(k), it's a good idea to maximize the amount you can contribute to it this year.

Remember that you don't have to pay taxes now on the money you contribute to a retirement account. Therefore, contributions to your retirement account will bring down your tax liability on your next tax return. Reach out to a tax attorney to learn more.

Share

Search