But believe it or not, November is actually a great time to make a number of key tax moves.
Here are five not to miss.
1. Use Up Your FSA Balance
Flexible spending accounts are a great way to lower your taxes, but they come with one major limitation: Overfunding your FSA could mean losing money if your medical expenses end up being lower than expected. If you’re staring down an FSA surplus come November, it’s time to start spending that money.
Due for a doctor’s visit in January? Try bumping that appointment up to December so your copay counts toward your current FSA (but check with your insurance company first to make sure you’ll be covered for moving your visit up). Wear glasses or contact lenses? Renew your prescription this month. You might even get away with stocking up on certain medications to use up your balance. But act now — providers are often booked around the holidays, and if you don’t find a legitimate way to spend that money, you could end up kissing it goodbye.
2. Ramp Up Your Retirement Plan Contributions
This particular move isn’t necessarily seasonal. It’s always a good idea to contribute as much as you can to a retirement account, because the more you put in, the more you can save on taxes up front. If your effective tax rate is 25% and you manage to throw an extra $1,000 into your 401(k) over the next month or two, you’ll lower your taxes by $250. This is an especially smart tactic if you’ve sold or are planning to sell investments at a gain, which could raise your tax burden for the current year.
3. Take Some Losses
Nobody wants to lose money on an investment, but if you’ve sold other investments for a profit, there’s a benefit to selling at a loss — namely, offsetting your gains and the taxes that come with them. Say you sold a certain security and made $2,000. Normally you’d pay taxes on that amount, but if you’re able to take a $2,000 loss during the same year, you can cancel out that gain and avoid giving the IRS its share.
Furthermore, you can write off up to $3,000 in losses per year against your income even if you don’t have any gains to show. And if you lose more than $3,000 on a bad investment, you can carry the remainder over to the following tax year and apply it then. Keep in mind, however, that this option only applies to losses from a non-tax-advantaged account. You can’t apply a loss that originates from a 401(k) or IRA to your current taxes.
4. Start Planning For 2017
Many companies kick off their open enrollment periods in November, which means you may need to make a number of benefits-related decisions in the coming weeks. While you can generally adjust contributions to a 401(k) plan during the year, you’ll need to decide what amount to allocate to your healthcare or dependent care FSA and stick to it (though there are sometimes exceptions when a life change, such as the birth of a new child, occurs).
To avoid getting caught off guard, start looking at how much you spent over the past year on out-of-pocket medical expenses and child care to arrive at an accurate total.
5. Shrink Your Refund
In an ideal world, the amount of money withheld from your paychecks would match your tax liability precisely. In reality, that rarely happens. Almost 80% of Americans get tax refunds every year, and while that may seem like a good thing at first glance, in reality, all you’re doing is providing an interest-free loan to the government.
That’s why now’s the time to review your tax withholdings and file a revised W-4 with your employer. Not sure if you’ve been paying too much (or too little) taxes to date? You can use this handy calculator to see where you stand. Adjusting your withholdings for even a single month could put extra money back in your pocket this year, right in time for the ever-expensive holiday season.
Click here to view the Money Talks News video ‘Simple Year End Tax Moves To Start Now‘
Source: AOL Finance