5 Strategies to Help Conquer Taxes

Tax season is officially here, and the April 17 th deadline to file is getting closer. Have you explored all options to reduce your tax liability? There may still be strategies worth exploring to boost your refund this year or reduce what you owe. With the many changes coming in 2018, now is the time to start planning for these as well.

1. Maximize contributions to retirement accounts

Retirement accounts offer great tax benefits! You have until the tax filing deadline to contribute to an IRA. For 2017, you can contribute up to $5,500 to an IRA, and if you qualify, the full contribution is tax deductible. If you have a qualified plan with your employer, your IRA contribution is not tax deductible, but it still may be worthwhile because it grows tax-deferred until you withdraw it in retirement.

By investing in your 401(k) or another qualified employer plan, your taxable income is also reduced and the funds also grow tax-deferred until you withdraw. Many employers will often match your contributions and sometimes additionally make a profit sharing contribution too. For 2018, try to increase your contribution or make this the year you save the $18,500 maximum. Didn’t save enough so far in your career? If you are over 50, you can contribute up to $24,500 in 2018.

2. Take advantage of pre-tax benefits

Many employers offer flexible spending accounts at work for a variety of expenses such as medical expenses or child care. Money contributed to these accounts goes in pre-tax, reducing your reported taxable wages. Later, when you need the money in these accounts for qualified expenses, the withdrawals are completely tax-free. Flexible medical savings plans cover expenses such as deductibles, eyeglasses or alternative and counseling services that may not be covered under your traditional medical plan. If you have a high deductible medical plan, you also can contribute pre-tax money to a Health Savings Account (HSA) as well. Both accounts can be used for out-of-pocket health expenses.

A flexible spending child care account offers the opportunity to use pre-tax income to offset day care, after-school programs and even, sometimes, summer day camp. For any flexible spending account, be sure to carefully estimate your known expenses for the year, as you must use all of the money in these accounts each year or forfeit it.

3. Donate to charity

Charitable donations are a great way to give back to the organizations you care about while also taking a tax deduction. You might write a check directly to the charity, donate goods or donate securities that have increased in value. Donating an appreciated security is a great tax strategy; not only do you earn a deduction for the full value of your gift, you also avoid capital gains taxes on any accumulated appreciation!

If you are not sure what charity you want to support, but you want to take advantage of an annual tax deduction, you might consider a Donor Advised Fund. During the year, you donate directly to the fund for which you can take a charitable tax deduction. Then you can take your time determining which organizations you would like to support in the future. Whenever you are ready, you direct the fund to send out your individual contributions. Any funds that stay in the account are invested and grow to offer even more benefit over time.

Keep in mind, there are limitations to your annual charitable deduction, so be sure to consult your tax professional during the year.

4. Consider your investment portfolio

Another way to maximize your tax efficiency is through your investment portfolio. Your investment professional can provide guidance on strategies to manage your investment taxes. For example, by keeping interest and dividend-paying investments in your IRA or other tax-deferred accounts, you can completely avoid annual taxes on this income.

You can also manage your taxes by paying attention to how long you have owned an investment. When you sell, the realized gains fall into two categories: those from investments owned less than a year (short-term) and those from investments held longer than a year (long-term). Short-term gains are taxed at your ordinary income tax rate while long-term gains are taxed at a lower capital gains rate. If you bought the security at different times, you can even specify which purchase date you want counted in the sale to further minimize your capital gains tax.

You may also want to consider “loss harvesting” in which investments that are currently at a tax loss are sold to offset other capital gains. For many investors, tax loss harvesting throughout the year not only reduces taxes, but has been proven to add to investment returns over time. Once a security is sold for tax purposes, the same security can’t be repurchased for 30 days.

Related: 3 Ways to Discuss Money with Adult Children

5. Don’t forget these

529 Education Plans: Under the 2018 new tax law , 529 plans can be used to save both for college as well as K-12 education expenses. Some states even offer a tax deduction for contributions to these plans. There is no federal deduction, but your investments grow tax-free each year. Even more valuable, qualified withdrawals are also completely tax-free. When making an annual contribution, keep in mind that the deposit counts toward your annual tax exclusion gift to the beneficiary. That means, if you contribute $15,000 to your child’s 529 account, you can’t make any other tax-free gifts to them in 2018. Always consult a tax professional and check your local state laws to determine if a 529 makes sense for your unique circumstances.

Miscellaneous deductions: Miscellaneous itemized deductions include expenses that many of us incur annually. However, to gain a tax deduction, they must exceed 2% of adjusted gross income. If you have had a job search, a purchase or sale of a house, or large unreimbursed business expenses, you might gain a miscellaneous deduction this year.

Due to the overall higher standard deductions in 2018, many miscellaneous itemized deductions have been eliminated. To see which ones, click here .

Medical expense deductions: These are a special category of itemized deductions. If you have had a year with unforeseen emergencies with large medical or dental expenses, you might qualify for a deduction in 2017. Your unreimbursed expenses must exceed 7.5% of your gross adjusted income to qualify. However, keep track of all expenses you incur, as even travel and parking for your medical care can be included.

The deadline to file your taxes is quickly approaching. Now is the time to think about any opportunities you may have missed to lower your tax bill. These are just a few strategies you might consider exploring this season. For more detailed information, download our learning paper on more tax management strategies .