For better or worse, 2020 is slowly but surely coming to a close. With just about a month left to this rollercoaster of a year, now's the time to start getting serious about your tax bill.
But some of the moves you may want to make to reap savings will need your attention soon. Here are a few that fall into that category.
1. Harvest tax losses
If you have an underperforming stock in your portfolio, you may be aware that unloading it at a loss will allow you to offset capital gains and/or ordinary income, thereby reducing your tax burden for the year. But don't wait too much longer to dump that stock. Right now, the market on a whole is in decent shape, but we don't know if coronavirus-related volatility will send stocks plunging in December. You're better off selling a bad stock at less of a loss than more of a loss.
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2. Give more money to charity
Donating cash to charity can give you a substantial tax deduction, and the more generous you are, the more you stand to gain. But it's not just money you can give away -- you're also allowed to deduct the fair market value of goods you donate.
If you're planning to go that route, get moving, especially if you're thinking of giving away larger items, like furniture, that need to be picked up from your home. Due to the pandemic, some charities may not have the staff or resources to coordinate physical donations so easily, so don't wait until the very end of the year to get that process started. If you do, you'll risk losing your tax write-off for the year.
3. Take care of medical issues
If you itemize on your taxes, you're allowed to claim a deduction for unreimbursed healthcare expenses that exceed 7.5% of your adjusted gross income (AGI). This means that if your AGI in 2020 is $80,000, you can claim medical costs above $6,000.
If you're right on the cusp, it pays to push up a few doctor visits, procedures, or other expenses so you're incurring them in 2020. Otherwise, you might come very close to being eligible for a deduction, but not close enough.
4. Boost your 401(k) plan contribution
The more money you put into a traditional 401(k) plan, the less income the IRS will tax you on. If you have the means to boost your contributions before the end of the year, you could eke out additional tax savings.
But don't delay -- 401(k) contributions come out of your paycheck directly, and you may need to inform your payroll department of a change at least one pay period ahead of schedule for it to go through. If you wait too long, you might miss the chance to pump a little extra money into your retirement plan and lower your tax burden in the process.
At this stage of the year, you may be more focused on enjoying the holidays and staying safe during the ongoing pandemic than on tax matters. But a few fairly simple, strategic moves on your part could put you in a better position to reap major tax savings this year. Therefore, take the time to address these items sooner rather than latter. You'll be thankful you did when your tax bill comes in lower.
