Whenever a given years starts to wrap up and a new year approaches, you'll generally be hit with some tax tips designed to help you maximize your savings. But one thing you don't want to do is put the following strategic tax moves off until the last minute. Rather, now's the time to make them.
1. Dump losing investments
You may have some stocks sitting in your portfolio that have been sluggish all year and are unlikely to recoup enough value to get back to the price you bought them at. The good news in this situation is that you don't have to sit back and watch those stocks decline even more. Rather, you can sell them at a loss and use that loss to your advantage.
When you sell stocks at a loss, you can use it to offset capital gains, so if you've sold stocks this year for more than what you paid for them, or you're planning to do so before the year ends, then your loss could cancel out your gains and erase your tax liability on them. And if you don't have gains in your portfolio, you can use your loss to offset up to $3,000 of ordinary income.
That said, don't wait too long to sell those losing investments. Stock values could decline even more following the election, so if you unload those investments now, you might minimize your losses. Similarly, if the coronavirus outbreak worsens, we could see widespread shutdowns that batter the economy even more. That, too, is a reason to sell those sluggish stocks now rather than sit tight until the end of the year.
2. Max out your retirement plan
Some people have lost income this year, and if you're one of them, saving in a 401(k) or IRA may be out of the question. But if you're doing fine financially, it pays to boost your tax savings by maxing out your retirement plan contributions.
However, if you have a 401(k) whose contributions get deducted from your paychecks, it could take your payroll department some time to process a request to boost your savings rate. It may, in fact, take a pay period or two, so if you wait too long to make that change, you could actually lose out on the chance to pump that extra cash into your 401(k). And while you should have more leeway with an IRA, the reality is that life tends to get hectic during the holiday season, so if you intend to put more money into retirement savings, you might as well do it now.
3. Donate goods to charity
It's not just financial donations that count as a deduction on your taxes; donating goods can have the same impact. But if you're going to donate things like gently used clothing, toys, or furniture, get moving now. If the coronavirus outbreak worsens, some of the charities that would normally collect used goods may be forced to halt that practice due to safety concerns. Furthermore, if you need larger items hauled away, which some charities will take care of, waiting until the end of the year increases your risk that you won't manage to get an appointment, and therefore won't manage to get the write-off you're after.
There's a lot going on in the world right now: a pandemic, a big election, and a time change that may be throwing your body clock off. But in spite of all that, it still pays to spend some time making the above tax moves. If anything, it'll give you one less thing to worry about going into December.