As the New Year approaches, you should set aside some time to make sure you aren't paying more in taxes than you have to and that you have a financial plan in place for 2014.
The holidays are here, the end of the year is right around the corner, and that means that this is an excellent time to get your financial ducks in a row.
For instance, the end of the year means a major deadline is rapidly approaching if you want to try to avoid paying more taxes than you have to for the year. These are tips and tricks that everyone, especially high-income earners, should be employing, as they’ll reduce your taxable income and reduce your overall tax bill.
At the end of the year, you’ll want to make sure you’ve contributed the maximum allowable amount to your retirement accounts. Taxpayers participating in 401(k)s and 402(b)s can defer up to $17,500 this year, and putting in the maximum not only reduces your tax burden, it also helps bolster your retirement funds.
If you’ve already reached the maximum contribution limits, then consider gifting or donating money. Any person can give any other person up to $14,000 without anyone involved owing any taxes on the transaction. This means that couples can give away up to $28,000 per year tax-free.
Charitable contributions can actually reduce the amount of taxes you owe if you itemize. This is a great way to get another tax break while also doing some good around the holidays. And don't forget, cash isn’t the only way to donate. Stocks, bonds, and other low-performing assets can all be donated to a charity, as can real estate, art, or other property.
Finally, the end of the year is a time to look both backward and forward. How have your investments done over the past year? If you have sustained losses in one area, you might be able to use them to offset gains in another. Or you might have to rebalance your portfolio. To do so, consider selling overweight positions in your retirement accounts to avoid taxes.
And, most importantly, now is the time to start setting your goals for 2014. According to financial advisor Jon C. Ylinen, a written, clearly established financial goal helps to police your decisions throughout the year.