5 Unusual Tax Moves to Make Before Year-End

You can read about “tried and true” year-end tax strategies everywhere. The purpose of this article is to give you some new tips on actions to take before Dec. 31. Let’s dive in!

Tip 1: Cut Your Withholding

Do you typically get a hefty tax refund every year? You might like that until you realize that you’re giving Uncle Sam an interest-free loan of your own money. By cutting your withholding now, you can have extra money for holiday shopping without being generous to the IRS. Going forward, keep your withholding about equal to your expected taxes. You’ll avoid penalties and you’ll get the benefit of interest on the extra money.

Tip 2: Use Your Credit Card

Financial advisors are always telling you not to use credit cards. But most people are not irresponsible with charging; they know to pay the balance in full each month, avoid interest fees, and rack up the points. There is a huge benefit to charging certain deductible expenses by year-end: The tax write-off occurs when you charge it, not when you pay it. This is especially useful for deductible expenses you would normally pay early in the new year, such as charitable donations and property taxes (if you are under the $10,000 maximum limit).

Tip 3: Pay Your December Mortgage Payment Early

If you itemize and want to boost your year-end deductions, make your December mortgage payment before the end of the month. You’ll effectively bunch 13 months of interest deduction into this year. Beware that going forward, you’ll need to do this every December to get the full 12 months of deductions each year.

Tip 4: Clean Out Your Closets

You know you have clothes you never wear. Your kids have toys they never play with. Why not get into the holiday spirit and help out those less fortunate? When my kids were young, I’d have them donate to needy kids to make room for holiday gifts. They learned an important lesson in giving. The rules are not very onerous. Document what you give, get a receipt, and keep the total to less than $5,000 to avoid an appraisal requirement. Your tax deduction is equal to the lesser of what you paid or what it’s worth.

Tip 5: Don’t Prepay Your Property Taxes

Your property taxes are due in two installments. When interest on your savings was next to nothing, it was easier and not costly to just pay it all at once. Now it’s a different story. With a $10,000 deduction limit on state and local taxes, you probably won’t get any tax savings from paying property taxes early. And, these days, your savings account can earn interest at 5% or more. So don’t turn over your money any sooner than you have to.

And be sure to consult with your CPA!