Americans have some important dates to juggle right now, including last-minute shopping opportunities and time off from school or work.
But while not as exciting as other occasions this December, year-end tax deadlines can be very important dates to watch, depending on your situation.
Sure, W-2s won't be mailed out until January, and the deadline for filing taxes isn't until April 15. However, a host of tax-related decisions must be made by New Year's Eve … or else they won't be applicable to your 2014 tax returns when it comes time to file them in a few months.
There assuredly are more fun things to do this holiday season than calculate your tax burden.
But don't overlook these 11 important year-end tax strategies, or you risk seeing the tax man take a big bite out of your finances.
•Consider deferring income. If you are self-employed and have had a particularly good year, it may make sense to defer some of that income until 2015 to reduce 2014's tax burden. If you're self-employed, simply wait until late December to issue invoices instead of early in the month — ensuring you won't receive payment (or have to pay taxes on that income) until next year. Similarly, if you're getting a big year-end bonus, you may be able to ask your boss to delay that until after January and thus not take the tax hit on your income until 2015.
•Pay your taxes now. Believe it or not, you get a deduction on your taxes just for the act of paying your taxes. This can include property taxes as well as estimated state taxes that can be deducted on a federal tax return. If you prepay your estimated taxes before April, you can deduct that tax payment in some situations.
•Donate to charity. Any charitable giving must be done by the end of the year to be claimed on your tax returns. That means planning ahead if you're donating a beat-up car to your favorite local charity, to ensure it's done before New Year's Day. Thankfully the digital nature of giving in 2014 allows even the worst procrastinators to claim any donations made by credit card as late as 11:59 p.m. on Dec. 31. As long as your receipt shows processing before the ball drops on New Year's Eve, you can claim the donation in tax year 2014.
•Give gifts up to $14,000. Well-off Americans planning for their estate can make good use of gifts to heirs of up to $14,000 each calendar year. Rather than shoulder a big tax burden upon death, some Americans choose to slowly transfer their wealth to relatives by a yearly tax-free gift. If this appeals to you and you have room before hitting that $14,000 threshold, December is the perfect time to make that maximum tax-free gift around the holidays. Also, if you want to accelerate the wealth transfer, after Jan. 1 you are in a new tax year — and have the ability to give another $14,000 per person and then claim that separately on your 2015 returns.
•Sell a money-losing investment to offset your gains. Referred to as "loss harvesting," selling a bad investment to offset profits from a good investment can make a lot of sense. The IRS calculates capital gains on a net basis year to year, so if you have one investment that made $10,000, you can avoid paying a penny in taxes on that profit if you have $10,000 in losses elsewhere to zero it out. Considering capital gains taxes can be as high as 39.6% for top earners, selling underperformers can be a powerful way to keep more of your profits from good investments.
•Max out your 401(k). The maximum 401(k) contribution for calendar year 2014 is $17,500, and every penny you put into this retirement account reduces your total taxable income on the year. The only hang-up is that since this money must be taken out directly by your employer, the only way to catch up is to significantly increase payroll deductions from now through year's end. That might mean putting almost all of your paycheck into your 401(k) and living very frugally for a few weeks … but if you can afford it, the tax benefits could be substantial.
•Take all of your RMDs. If you are age 70½ or older, the government requires you to start drawing down your tax-sheltered retirement plans like an IRA via "required minimum distributions" each year. The reasoning is that you deferred taxes on these funds for years and the Internal Revenue Service can't get its share until you actually take the money out — so the tax man demands you withdraw a set amount each calendar year. If you don't withdraw this minimum amount, you may take a hefty penalty of as much as 50% on the sum you should have withdrawn. Since Uncle Sam is going to get paid either way, make sure you ask your tax professional or consult the IRS website for more details on your specific RMD figure to prevent leaving money on the table. Required minimum distributions vary based on age and how much you have saved.
•Use all your FSA cash. Another acronym in the alphabet soup of tax time is FSA, or flexible spending account. These are vehicles where you can stash pretax dollars for qualified expenses like medical bills or child care. Flexible spending accounts offered through your employer are a great way to reduce your taxable income, but they are also "use it or lose it" in nature. So if you socked away $1,000 for medical bills but only have used a few hundred bucks, try to schedule qualified expenses before the end of the year or that money will simply be lost.
•Prepay tuition for spring 2015. You can deduct up to $4,000 from your taxable income through tuition payments. And according to the IRS, this includes not just tuition paid for study in 2014, but also any payments for classes that will begin before April 1, 2015. This is particularly helpful to folks who just started college or other study in the fall and are under that $4,000 threshold, but will be starting up again in January.
•Get health insurance. The Affordable Care Act, colloquially known as "Obamacare," requires every individual to have health insurance in 2014 or face a maximum penalty of $285 or up to 1% of your annual household income. If you haven't been covered for much of 2014, it's too late to avoid all of the penalty. But getting insurance now could reduce your burden — and most importantly, ensure you're insulated from higher penalties in 2015. Next year, the maximum penalty is $975 per household or up to 2% of total income, whichever is greater.
•Adjust your withholding for 2015. If you're stuck with a big tax bill in 2014, don't wait to reset your withholding requirements in your paycheck. If you properly adjust your tax burden in December to take effect on the first of the year, you can avoid the sticker shock of a big tax bill next year by starting to pay it piecemeal after New Year's Day.
Don't wait. Just because you have until Dec. 31 to make good on any of the aforementioned items doesn't mean you should wait until the last minute. Financial institutions are awfully busy this time of year thanks to procrastinators like you, documents get delayed in the mail over the holidays and sometimes things simply fall through the cracks. The longer you wait, the higher the likelihood of a small delay creating big headaches for your 2014 tax return.
Jeff Reeves is the editor of InvestorPlace.com and the author ofThe Frugal Investor's Guide to Finding Great Stocks .
