Last Minute Reductions


  • Make charitable contributions. Cash, appreciated securities, clothing, furniture – any of these can be donated at the last minute. (The charities will not take children, however. I've tried.) If you truly wait until the last minute, so long as your check is dated and sent by the end of the year, you're entitled to a deduction even though the check clears in New Year.
  • Sell losing investments. If you have any stocks or other investments in a taxable investment in account (not a retirement account) that have losses, you can sell the shares, take the loss, and use that loss to offset any capital gains, including gains in mutual funds. Also, once you've used your losses to offset all of your gains, you can use up to an additional $3,000 in losses to offset your job and other income. If you have a significant loss, any losses that you cannot use can be carried forward to future tax years. Good deal for a investment gone bad.
  • Boost contributions to workplace plans. Contributions to your workplace retirement plans (401(k) and 403(b) plans, for example) usually must be made throughout the year, but some plan administrators allow for "catch up" contributions in December if your contribution level is less than the maximum allowed. This is a good way to save taxes at the last minute. If this is not allowed, put this into your mental "to do" lisTOPIC: Come January, ask the plan administrator to boost the percentage of your salary that's going into the plan.
  • Set up a self-employed retirement plan. If you have income from self-employment, even part time self employment, the regulations impose a December 31 deadline for setting up most, but not all self-employed plans, even though you can fund them in the following year.
  • Do a Roth IRA conversion. The rules surrounding Roth IRA conversions often require a late-in-the-year evaluation of your financial and tax situation, but be forewarned that any money that is converted to a Roth for a given tax year must be transferred by the end of that year.
  • Review flexible spending accounts. Depending on your employment situation, a review of any flexible spending accounts available through your employer might reveal last minute strategies that will help you take maximum advantage of benefits.
  • Avoid late year mutual fund purchases. Many investors unwittingly pay an unnecessary capital gain tax by purchasing a mutual fund in a non retirement account shortly before it distributes its realized capital gains, typically late in the year. Postponing the purchase until immediately after the distribution will avoid unwelcome tax consequences.
  • Make tax deductible payments with your credit card. If you want to make tax-deductible payments late in the year, including charitable contributions, but lack the cash, you can use your credit card to make the payment this year, take the deduction this year, and pay your credit card bill next year.