It’s almost 2018! While you may have your eyes set on your New Year’s Eve plans, here are a few year-end tax moves to reduce your taxes.
Do a quick year-end analysis
Prior to year-end, this is a great time to set aside time to estimate your tax bill. The Internal Revenue Service (IRS) has a withholding calculator that allows you to calculate your expected tax liability. Merely use information from your projected profits, wage earnings, rental activities, current deductions and other information to get a good idea of the amount you are expected to pay.
Determine your estimated taxes
Using your expected tax liability, determine what amounts you may owe in estimated tax payments. Individuals (partners, sole proprietors, S corporation shareholders) who project owing taxes of $1,000 or more are required to pay estimated taxes. Also, corporations are expected to pay estimated tax payments if they plan to owe more than $500. If you are not paying enough in withholding and estimated tax payments, you may be required to pay the penalty to the IRS. For more information, review the IRS Publication 505, Tax Withholding and Estimated Tax.
Zero out spending accounts
Remember, that you have until Dec. 31 to utilize your flexible spending accounts (FSA). Flexible spending accounts allow individuals to save tax-free money for medical and dental expenses. In most cases, these accounts have a “use it or lose it” rule, which means you have until year-end to pay for qualified expenses. While some plans allow for a grace period or carryover, it is essential to check with your provider to understand the terms of your spending plan.
Why wait for Jan. 1 to pay for certain expenses? If you expect that your income will be lower next year, it may be a good idea to advance deductions for this year. Therefore, you should consider prepaying expenses that you may anticipate to pay at the beginning of the year.
During this time, you should also consider the moving parts of the tax reform bill that is before Congress. Depending on whether the bill succeeds and your tax situation and expected profits next year, the tax reform bill may impact your bottom line. It is a good idea to meet with a tax professional to determine what year-end tax moves you should consider.