Five Tax Tasks to Consider Completing Before the End of the Year

By Erin McHugh

As the end of 2017 draws near, here are five tax tasks you may consider completing before 2018 in order to reduce your taxable income come spring.

1.     Give Back
Most people end up donating to at least one charitable cause around the holidays. It’s one potential way to offset taxes while contributing to a greater cause and helping your community. If you want your charitable donations to be tax deductible for this year, remember you’ve got to donate by Dec. 31. Be sure to keep track of your receipts.

If you want to save more on taxes, you may want to donate a gift of appreciated securities or stocks to your charity of choice in lieu of cash. That way, you won’t be charged the capital gains tax you would have to pay if you sold the stocks. Plus, you’ll get a charitable tax receipt for the full amount.

2.     Use Your Flexible Spending Account
Medical FSAs are great for their ability to offset qualifying medical expenses with pretax contributions. If you have such a plan, it allows you to set aside pretax money to cover eligible out-of-pocket medical expenses, such as deductibles or copays on doctor visits. However, if you don’t use the cash you’ve built up in your account by Dec. 31, you forfeit what’s left. So take care of any foreseeable appointments and medical needs by the end of the year to ensure you get the most use out of those pretax dollars.

 3.     Maximize Contributions to Your Tax-Advantaged Retirement Plan
If you haven’t already maxed out your contributions to your tax-advantaged retirement plan through regular savings, now’s the time to do so. In most cases, for 401(k) plans, the maximum contribution amount per year is $18,000, plus an extra $6,000 if you’re age 50 or over.

Consider contributing your bonus if you’re getting one this holiday season or investing any excess savings you’ve accumulated. If you can’t contribute the full amount allowed, make it your goal to invest enough to get the full match offered by your employer.

4.     Time Your 529 Plan Distributions Carefully
It’s easy to have a portion of your 529 plan funds accidentally classified as a nonqualified distribution, which potentially makes them subject to income tax and a penalty. To avoid this, make sure your 529 plan withdrawals match up with a qualifying expense in the same calendar year. This can be tricky since bills for spring tuition tend to come in December but the expenses technically occur in January of the next year. 

If you pay a bill like this, simply request a reimbursement from the 529 plan in December rather than January and you should be fine. In most instances, you can do so by electing one of three options for payment distribution: the school, the beneficiary or the account owner.

 5.     Selling Stocks
If you have stocks that have declined in value and you’re thinking about selling them, do so before the end of the year so you can harvest the loss and capture the deduction. This could help offset any gains you have from selling stocks that increased in value this year, and potentially reduce or eliminate taxes you would have had to pay on those gains. This means you’ll have to pay less money, if any — and that’s always a good thing.

Now that you’ve got a head start on tax season, but there’s more prep work ahead. Remember to talk to your CPA well before spring arrives, so they have time to advise you and aren’t swamped with paperwork.

It might make sense to make an appointment to update your financial plan or create a new one while you’re already thinking about finances. That way, you can start the new year off fresh and be better prepared to meet your financial goals.

Visit USAA’s Tax Center to access tax forms, documents, guides and more

 


 

Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers, and affiliates.  

Financial planning services provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), a registered investment adviser and insurance agency. 

The contents of this document are not intended to be, and are not, legal or tax advice. The applicable tax law is complex, the penalties for non-compliance are severe, and the applicable tax law of your state may differ from federal tax law. Therefore, you should consult your tax and legal advisors regarding your specific situation. 

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