12 Smart Tax Moves to Make Before the End of the Year

As 2018 draws to a close, it's time to start thinking about making last-minute tax moves that can help decrease your tax burden come April and get yourself organized for the annual filing process. Many tax deductions and credits are based on actions that take place before Dec. 31. Here are some money saving and housekeeping moves to consider before 2018 becomes history.

One way to lower your taxable income is to max out your 401(k) plan contributions by the end of the year, says financial adviser Brett Gottlieb of the company Comprehensive Advisor. "For 2018, you can contribute up to $18,500 if you're under 50, or $24,500 if you're 50 or older," Gottlieb said. The pre-tax contributions allow you to avoid paying income taxes on the money you put into the plan.

With a tax move referred to as tax-loss harvesting, you can sell your investments that have unrealized losses to offset any realized gains, says suggests accounting analyst William Perez of FitSmallBusiness.com. "Investors who have taxable gains from trades earlier in the year might want to analyze their portfolio to identify losers," Perez said. "Losses booked before the end of the year will reduce the net amount of capital gains subject to tax."

Those who are 70½ or older are required to take annual payouts from retirement accounts including 401(k) accounts, Simple IRAs, SEP IRAs, and traditional IRAs. "Failing to do so can cost you steep penalties of up to 50 percent of the distribution you are required to take," said Gottlieb of Comprehensive Advisor.

If you're expecting a holiday bonus, congratulations. But the extra money in your pocket may bump you up to another tax bracket and increase your tax liability. Ask your company if they can hold off on paying that bonus until January, says Lisa Greene-Lewis, CPA and tax expert at TurboTax. "You'll still receive it close to year-end, but you won't have to pay taxes on it when you file your 2018 taxes," says Greene-Lewis. This is particularly useful if you think you may be in a lower tax bracket in the coming year.

If you own a home and get a mortgage interest deduction, make an extra mortgage payment on Dec. 31, says Greene-Lewis of TurboTax. "You can claim that additional tax deduction on this year's taxes," she said.

Earn a 2018 tax credit by having solar panels installed before the end of the year, suggests Perez, of FitSmallBusiness.com. "You'll be able to get the credit as long as the installation work is finished by Dec. 31," Perez said.

Did you buy or sell a house in 2018? Track down that closing statement and be sure to give it to your tax preparer, says Jennifer Beeston, vice-president of mortgage lending at Guaranteed Rate Mortgage. "They will need this. If you forget to give it to them, they could miss writing off taxes you paid at close, prepaid interest, and discount points," Beeston said.

Not only will donating to charity help someone in need, but you can also reap the benefits of a tax deduction if you itemize your tax deductions and do not take the standard deduction. "Make these donations count on your taxes by donating by December 31st," said Greene-Lewis at TurboTax.

Taking a course to advance your career or build your business is a great way to boost your tax refund, says Greene-Lewis of TurboTax, as education expenses are deductible. "Paying for next quarter's tuition by December 31 may also give you a valuable tax credit up to $2,000 with the Lifetime Learning Credit," said Greene-Lewis of TurboTax. The Lifetime Learning Credit can offset your expenses even in graduate or professional schools.

Qualified charitable distributions (QCD) can be made by those 70½ and older. Such a distribution is a direct transfer of funds up to $100,000 from an IRA, payable to a qualified charity, explained certified financial planner Jeff Grodsky of Carmichael Hill. The amount donated via a QCD is excluded from your taxable income and can be counted toward satisfying your annual required minimum distribution from a retirement account.

Money put into a health savings account can be used in 2018 or saved for retirement. But no matter when you use it, contributions are tax-deductible, so they reduce your federal income taxes owed. What's more, assets in your HSA account typically grow tax-free, at least at the federal level. "Family limits are $6,900 in 2018, increasing to $7,000 in 2019 and individual are $3,450," said Stephanie Bacak, financial planner with Capstone Global Advisors. "This is a great reduction in income because you can use in the current year to have medical care with pre-tax dollars or have medical dollars at retirement." In 2019, individual limits are increasing to $3,500.

Medical, dental, and health care expenses in excess of 7.5 percent of your adjusted gross income are tax deductible for 2018, said Jacob Dayan, CEO and co-founder of the tax-service company Community Tax and also the accounting and payroll services company Finance Pal. "Consider paying any medical expenses before the end of the year to get your deduction over the 7.5 percent threshold," Dayan said.