Year-End Tax Moves to Prepare for Next Year

Gina Deveney
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Get ready to start the new year on the right financial footing with several year-end tax moves that can save you money when you file your returns. Even though the income tax filing deadline is not until April 15, the last two weeks of December offer a final chance to get your 2014 finances in order while you make resolutions for the coming year.

Before December 31 arrives, look for additional itemized deductions that could be effective year-end tax moves, especially if your existing deductions already exceed the standard amount. Contributing to a pre-tax retirement savings account is an especially good idea because you reap the benefits of this investment both now and later. The 2014 IRA contribution limits are $5,500 for people under 50 and $6,500 for those 50 and older. The limits for 401(k) plans are $17,500 and $24,000 for the same respective age groups.

Take a financial inventory to determine the amount of pre- and after-tax income you have in your retirement accounts. A licensed tax adviser, accountant or financial planner can show you how much you contributed to each account this year and how much you will pay in taxes on it when you take the money out. Pay attention to your effective tax rate, not just your income tax bracket, when you make these decisions. For example, in 2014, if you file as single and your adjustable gross income is $90,000, your tax rate is 25 percent. Lower that figure to $80,000 with year-end tax moves and your rate drops to 22 percent.

Based on your analysis, determine what contributions you want to make to IRA, Roth IRA or 401(k) options available to you. Then estimate your effective tax rate after you retire to see if it is higher or lower than your current adjusted rate. You may consider converting some of your 401(k) funds to a Roth account if your rate today is lower than you project that it will be when you retire. These types of year-end tax moves can save you money since the amount converted is taxable now and tax-free when you withdraw it.

Use tax software before the end of the year to see if you may have any withholding issues. This comes in particularly handy if believe you may owe taxes in April. You may also want to sell some of your poor-performing stocks to write off the loss as a deduction this year. These year-end tax moves can make the difference between sending more money to the IRS or getting a refund.

If you are a new business owner, make sure to gather your documentation in December rather than waiting until April. Business taxes are significantly more complicated than individual taxes. Make your time with your accountant more efficient by having everything ready before you meet. If you've stayed on top of your company's finances, you should already have a good idea of what to expect, so make sure your paperwork is in order sooner rather than later.

Year-end tax moves are not just a chore. They can save you real money both when you file your annual returns and again when you retire. Take advantage of the opportunities afforded by different types of retirement savings vehicles to make your future financially secure.


Photo courtesy of Philip Taylor at



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