Smart tax planning is something you should do all year long, not just at the end of it. Having said that, there are some last-minute ways you could slash your 2018 tax bill and put hundreds or thousands of extra dollars in your pocket when you file your return.
With that in mind, here are five potentially lucrative tax tips that you can still take advantage of, even though there are fewer than two weeks left in 2018.
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1. Sell a losing investment or two
Did your portfolio take a beating from the fourth-quarter stock market volatility? If you're sitting on some losing investments and are considering getting rid of them, it could be smart to sell before the end of the year.
The IRS allows you to use capital losses to offset capital gains. Even if you didn't sell any investments for a profit in 2018, you can still use as much as $3,000 in losses to offset your other taxable income.
One big caveat: I'm not suggesting that you sell a stock just because its price went down. However, if your original reasons for buying one of your losing stocks no longer apply, or if you think you could put that capital to better use elsewhere, the tax benefits of selling could help make your decision easier.
2. Do you have unpaid student loan interest?
The above-the-line tax deduction for student loan interest survived the passage of the Tax Cuts and Jobs Act, so Americans can still deduct as much as $2,500 in qualifying student loan interest each year.
With that in mind, here's a tip if you're on an income-based repayment plan. The deduction applies to all student loan interest that you pay, not just the amounts you are required to pay. If your required monthly payment doesn't cover all of your student loan interest each month, there's a good chance that you have some built-up interest. As long as you're within the $2,500 cap, making an extra student-loan interest payment in 2018 could help maximize this deduction.
3. Defer some income, if possible
This tip can be especially handy if you're self-employed. One of the most logical ways you can reduce your income tax in a given year is to reduce the amount of income you receive in a given year.
For example, if you're a freelancer, you could hold off on billing clients until the end of the year is near, effectively ensuring that you won't be paid until 2019. Even if you're an employee, there could be creative ways to defer some income. For example, if you're expecting a year-end bonus, you could ask your boss to wait until after Dec. 31 to pay it to you.
To be clear, deferring income this year will result in higher income next year, so be sure to take that into consideration (that is, unless you repeat the process in 2019).
4. Make an extra mortgage payment
This tip only applies if you're planning on itemizing deductions. Having said that, one of my favorite tax strategies involves maxing out the mortgage interest deduction.
Here's how it works. If you have a mortgage payment due in January, make that payment before the end of the year. This can potentially give you 13 mortgage payments (and an additional month of mortgage interest) in 2018.
5. Boost your retirement contributions
While it's likely too late to meaningfully increase your contributions to your employer-sponsored retirement plan -- such as a 401(k) -- there are some other options:
- If you qualify for the traditional IRA tax deduction, you have until April 15, 2019, to make your 2018 contributions. The 2018 limit is $5,500, with an additional $1,000 catch-up contribution allowed if you're 50 or older.
- If you're self-employed, it's not too late to open and fund a SIMPLE IRA, SEP-IRA, or solo 401(k).
- If you contribute to a health savings account (HSA), it could be an excellent way to save for healthcare expenses in retirement.
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