We’re now a little more than a week into the 4th quarter of 2011, which means that you have less than three months to make moves to reduce your tax liability for this year. While there’s a limit to how much you can do, you can save a nice chunk of change by taking a few simple steps.
Below, I’ve outlined a handful of ideas for minimizing your tax bill. There’s still plenty of time to make these things happen, but time flies — especially around the holidays — so don’t dawdle.
Tax-saving steps for 2011
- Make charitable contributions. I’m thinking here of not just cash contributions, but also of donating stuff from around your house that you no longer need. Just be sure to keep proper documentation in case you get audited.
- Do some tax loss harvesting. I’ve talked about this in the past, but… If you have any losing investment positions, you can sell them and buy into a similar investment. This allows you to book the loss on paper while staying in the market so you don’t miss out on a potential recovery.
- Max out your retirement accounts. I’m thinking here of both IRAs and employer plans, like a 401(k) or 403(b).
- Contribute to a 529 plan or a Coverdell ESA. This won’t reduce your Federal tax bill, though you may get a state tax break. Moreover, your investments will benefit from tax free growth.
- Contribute to your Health Savings Account (HSA). If you have a high-deductible health plan, be sure to contribute to your HSA. Contributions are tax deductible, and can be withdrawn tax free to pay for qualified medical expenses.
- Business expenses. If you anticipate incurring any major business expenses early in 2012, you might consider moving them up to the very end of 2011 so you can benefit from the tax break 12 months sooner.
Finally, while this won’t reduce your 2011 tax burden, it’s also time to start thinking about spending out your flexible spending account (FSA). As a reminder, FSAs are subject to the use-it-or-lose-it rule, so you’ll want to be sure you don’t have anything left over at the end.
While some FSA plans have a grace period after January 1, others don’t. Be sure to check the details of your plan so you don’t have unspent funds at the end.
If you have any other suggestions, please share them in the comments.