Tax-Saving Tips to Implement Before the End of the Year

Before the year is up, consider implementing these five strategies to reduce your tax burden.

1. Make extra payments

Generally, interest paid on student loans and mortgages is tax deductible. If you itemize deductions on your tax return, squeezing in an extra payment may increase your interest tab — and potentially the associated tax deduction. Just make sure you’re paying ahead of schedule and not solely making principal payments. For example, if you pay your January loan payment in December, you’ll add to the interest total you paid in the tax year.

2. Increase contributions

If you have an employer-sponsored 401(k) or 403(b) plan, you can make up to $18,000 in tax-deferred contributions in 2016 ($24,000 if you’re 50 or older). If you have a traditional IRA, you can make up to $5,500 in tax-deferred contributions ($6,500 if you’re 50 or older). And don’t forget your health savings account (HSA): If you are eligible for an HSA, you can make up to $3,350 in tax-free contributions to an individual account, or you can contribute up to $6,750 with a family account. If you or your spouse is 55 or older, you can contribute an additional $1,000, which is considered a catch-up contribution. If both you and your spouse are 55 or older, you can each benefit from the catch-up contribution only if you have separate HSAs.

3. Give, give, give

Generosity pays come tax day: If you itemize deductions on your tax return, you can write off charitable contributions made by Dec. 31. Likewise, you can reduce state and federal inheritance taxes on your estate later by giving money now. The IRS allows you to gift up to $14,000 per year, tax-free, to any number of people.

4. Save for college

While contributions to 529 college savings plans aren’t deductible from your federal tax return, they might qualify you for a credit or partial deduction on your state return, depending on where you live and what state your plan is from.

5. Cut your losses

If you’ve made money on stocks or mutual funds this year, you may be able to offset capital gains on your tax return by selling other investments at a loss.

Implementing these and other year-end tax savings strategies will help you finish the year on a good financial note.


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