Why not give yourself the gift of tax savings this holiday season? You have until December 31 to realize the benefits of these strategies:
1. Max out your IRA if you’re not retired. Whether you have a 401(k) or 403(b), saving the maximum allowed by the IRS not only sets you up for greater financial security in retirement, it reduces your taxable income this year.
2. Take your RMD if you are retired. Once you reach 70½, you must begin to take money out of your IRA. The consequence of not doing so is a hefty 50% excise tax, so don’t neglect this! If you don’t actually need all of the money you’re required to distribute, consider making an IRA charitable distribution of up to $100,000.
3. Cut your losses. No one has a perfect investment track record. If you’re holding onto depreciated stock, sell it now and deduct the loss. You can use the tax savings to offset capital gains on appreciated securities.
4. Cut your gains — and do something good. Maybe 2019 was your lucky year, and your portfolio has grown a great deal. That means your capital gains have too. To minimize the tax burden, donate some of those stocks to charity. You avoid paying tax on the gains and you can deduct the value of the gifted shares.
5. Invest in community. The Tax Cuts and Jobs Act created Qualified Opportunity Zones to encourage investments that will spur development and job creation in economically distressed areas. Depending on the length of your investment, you could defer capital gains taxes, receive a step up in basis, or avoid capital gains taxes entirely.