Holiday stress is boiling over, and the last thing you want to worry about are your taxes due next April.
But while enjoying a good year financially thanks to increased earnings and the stock market’s all-time highs is great news, it means your tax bill is going to increase as well.
Ideally, you’ve been working taxes into your overall financial strategy all year. But if you haven’t or need some last-minute ideas for tax havens, here are a few year-end tax-saving ideas for you and your business before the clock strikes midnight on Dec. 31:
Max Out That 401(k)
In 2014, workers can contribute up to $17,500 to employer-based retirement plans. That will reduce your adjusted gross income (AGI), as money you contribute to your 401(k) or similar employer-based retirement plan is subtracted from your taxable income, thereby lowering your tax bill.
Most companies will offer matching programs for 401(k)’s, which is like free money, so be sure you’re contributing up to your employer’s matching amount — at the very least — and beyond that if you are looking for a place to invest. Your 401(k) is as good a place as any. And the money is still yours; you’re just making a smart decision to delay gratification today for a better future.
If you are 50-plus, you can contribute up to $23,000 to your 401(k) in 2014.
Contribute to Your IRA
An individual retirement account (IRA) is another place to stash money to reduce your taxes. With an IRA, you have until next April 15 to make a 2014 tax-deductible contribution of up to $5,500.
Playing catch-up? If you’re 50 or older and playing catch-up on your retirement, you can contribute up to $6,500 to your IRA in 2014.
If you don’t have an IRA yet, you can set one up through most online brokers, including TD Ameritrade and Charles Schwab, among others, or through a low-cost, automated service such as Betterment or Wealthfront. Your future self will thank you.
Defer Income Until 2015
If you’re on the verge of moving into a higher tax bracket, which could result in a 3-10% tax increase, consider deferring your last paycheck or two until next year, if your employer will allow it.
You should take into account what your income and tax bracket for next year will be. If you expect to earn even more in 2015, this may not be the best option — but it’s one to consider if you’re toeing the line on income tax brackets in 2014.
Give to Charity
Contributing to charitable causes before the end of the year is a feel-good and smart tax-reduction strategy. There are thousands of charities out there, and this is something that not only helps your tax bill, but also your heart and soul. It can even make a good gift for the person who has everything.
Need some inspiration to get in the giving mood? Read about billionaire Chuck Feeney, founder of Duty Free shops, who is trying to go broke by giving to charity.
Remember to get a receipt for all donations; they’re required by law for donations over $250.
Give Your Winners to Charity
One strategy that offers two tax benefits in one is donating your appreciated stocks — the ones that performed well this year — to charity.
The IRS allows you to use the current market value of the stocks as the deduction amount and you do not have to pay taxes on the increase in value, so you get the charitable contribution deduction plus you avoid paying capital-gains taxes. Double bonus!
If your charity of choice is not equipped to accept donations of securities, you may want to consider opening a donor-advised fund. The fund administrator will assist you and sell the securities on your behalf and then add the proceeds to your account. You can then deduct the value of the securities on your 2014 tax return, and decide later where you want to donate the money.
Realize Your Losses
If you have capital gains outside of your retirement accounts, you may be able to lower your tax liability through realizing your losers. That means selling your bad-performing investments that no longer fit your strategy and using the losses as tax write-offs against some or all of your gains.
If you decide to try this strategy, be aware of the “wash-sale rule” that disallows the write-off if you purchase the same investment 30 days before or after the loss sale. Meaning, don’t sell bad-performing shares to lock in a loss, take the tax break, and then buy them back right away.
There’s bad news and (potentially) good news with these plans, which are designed to encourage saving for college.
First, the bad news: You won’t be able to claim a federal income tax deduction for your contributions to a 529 plan. Sorry.
The potential good news: Depending on where you live, you may be able to get a state income tax deduction. Most states only let you claim a deduction if you contribute to your own state’s 529 plan.
While there will likely be a limit on the amount of the deduction (example: you may be able to deduct $4,000 of your $10,000 contribution), it’s worth checking the details of your 529 plan and your state’s tax treatment of such plans. Click here to learn more about the IRS’s treatment of 529 plans.
And our best tax tip for 2015? Start planning earlier next year.
Joe Sweeney is a social entrepreneur, committed to helping individuals and organizations grow and solve problems. Most recently, he was the co-founder and CEO at 100state, a nonprofit, startup community of entrepreneurs, educators, and innovators in Madison, Wis. Joe was recently named one of 53 entrepreneurs on Madison Magazine’s “M List: The New Who’s Who” for his work with 100state.