Worried that you may end up paying more than you want in taxes next year? There are some clever and perfectly legal moves that you can make to maximize your tax write-offs in December. Here’s a look at five ways to magically make some of your potential taxes disappear.
1). Sell Losing Investments
We all make losing trades when we invest. The good news is that you can sell some of those losing stocks and write them off on your taxes. Current tax law allows you to write off up to $3,000 per year in tax losses.
Take a look at any losing investment positions that you don’t want for the long term. Be sure to sell that position before the end of the year. From there, you will be able to take the tax write-off.
2). Contribute to Your 401K
A quick way to write off taxes in December is to contribute or open a 401K account. A 401K is a tax-advantaged retirement account where you can contribute up to $19,500 in 2021. With a 401K, your contribution allows you to invest and defer capital gains until you withdraw the money at retirement age. However, you gain the immediate benefit of writing the contribution off on your taxes.
You can open a 401K account in minutes by signing up with a broker that offers 401K trading accounts. If you already have a 401K account, be sure to make your contribution before December 31.
3). Make Charitable Donations
Another quick way to write off some of your taxes is to make a charitable donation. For married couples, you can write off up to $600 in charitable donations. Single filers can contribute up to $300. If you want to write off higher contributions, then you will have to itemize. Standard charitable contributions can be made by cash, check, credit card, or debit card.
4). Make Next Year’s Business Expenditures This Year
If you run a business, then you already know that much of what you spend on that business can be written off. However, if you want to maximize your tax write-off, you should start making next year’s business expenditures this year.
For instance, let’s say that your business purchase $50,000 of inventory each quarter. You can consider purchasing the inventory for the first quarter of next year during the fourth quarter of the current year. This will allow you to take an immediate write-off.
5). Take a Class Use Your Lifetime Learning Credit
Finally, you can take a class in December and use some of your Lifetime Learning Credit. Currently, you can write off 20% of up to the first $10,000 of qualified education expenses or $2,000 per tax return.
A Lifetime Learning Credit can be used for both tuitions as well as related expenses such as books, supplies, and computer equipment related to the class or the course.
Minimizing Your Tax Burden Before the End of the Year
As you can see, you have lots of options when it comes to maximizing your tax write-offs in December. Consider any one of the above tactics. You will be surprised how easy it can be to lower your taxes at the end of the year.