When the leaves start falling from the trees, it gets me thinking about the cyclical nature of things, including the tax year cycle. Not very poetic, I know; most people look forward to their tax bill with as much enthusiasm as the winter frost. However, there are ways to prepare for its arrival, in addition to minimizing its bite. Here are three major moves you can still make before the December 31st deadline:

 

  • Max out your employer-sponsored retirement account. The 2016 limit is $18,000 ($24,000 if you’re 50 or over). Typically, the money you put into a 403(b) or 401(k) is pretax, so if you’re in your fifties, say, you have the potential to reduce your taxable income by $24,000. Let’s also suppose you are in the 25% income tax bracket, which translates to $6,000 in savings for the 2016 tax year. With traditional IRAs, you can contribute the lesser of $5,500 ($6,500 if you are aged 50 or older) or your taxable compensation for the year. Also, you can keep making contributions up until the date your tax bill is due—usually April 15th of the following year—so focus on the employer plans for now.

 

  • Make charitable donations. If you itemize your deductions on your tax return (as opposed to taking the standard deduction), you’ll be able to deduct the donations you made to the charities you hold close to your heart. Make sure you keep credit card statements or other proof of payment; any donation above $250 will need an acknowledgment from the charity. A lot of charitably inclined individuals over 70½, who don’t need to tap into their IRAs anytime soon, may divert their required minimum distributions (RMDs) to charitable organizations rather than pay tax on income they don’t immediately need. The qualified charitable distribution currently allows you to transfer up to $100,000 directly from your IRAs to qualified charitable organizations each year after you reach the age of 70½.

 

  • Gift money to loved ones. It will soon be the season for merrymaking and exchanging gifts, so taxes will likely be the last thing on your mind. But before stocking up on wrapping paper and bows, think of ways you can gift money that benefits you as well as the lucky recipient. Take advantage of the annual gift exclusion limit (in 2016, that’s $14,000 per gift recipient). Those gifts can be made to your loved ones without counting towards your lifetime gift tax exclusion limit ($5.45 million in 2016), which may be especially beneficial for individuals with large estates, since it allows them to remove the gifted assets from their taxable estate now for estate tax purposes at death. Of course, there are other nontaxable reasons to gift during your lifetime—not least, the pleasure of seeing your loved ones make use of the funds.

 

So before you get swept up in the holiday season, use this time to review your finances and find ways to minimize your taxable income for the year. It will pay off when tax season comes around.

 

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