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7 ways to cut your tax bill before Dec. 31

The final few weeks of the year aren’t just for last-minute shopping and holiday parties. It’s also a crucial time for tax savings.

While the 2017 tax overhaul did put a whole new spin on year-end planning, it did not eliminate the need to do it altogether.

In fact, from making an 11th-hour charitable donation to an early college tuition payment, now is your last chance to reduce what you’ll owe Uncle Sam come April.

So put down the eggnog and cross these tax moves off your holiday to-do list:

1. Check your withholding

Last year, the Treasury Department and the IRS updated the withholding tables to reflect the tax law’s new standard deduction, as well as the personal exemptions that were eliminated and the limits on certain itemized deductions.

As a result, some filers wound up with smaller-than-expected refunds. Others ending up owing money.

(If you withhold far too much, you get a large refund the following year, but you’ve also given the government an interest-free loan. If you withhold too little, you take home more cash in your paycheck, but you may owe the IRS next spring.)

“The withholding you have now may or may not be the right amount of tax for you,” said Elda Di Re, a partner at EY (formerly Ernst & Young).

2. Boost retirement contributions

Reduce your taxable income dollar-for-dollar by contributing as much as you can to your 401(k) plan by Dec. 31.

You can save up to $19,000, and if you are over 50 you can kick in an extra $6,000. Ask your human resources department what you need to do to increase your contributions before the end of the year.

3. Offset losses

After December’s choppy start, chances are you have some investments that lost value this year.

You can use those losses to zero out capital gains, and then deduct up to $3,000 a year against ordinary income, according to Di Re. Losses in excess of that can be carried forward to future tax years until the balance is used up.

For example, if you have $10,000 of losses and $5,000 of gains, you have an overall loss of $5,000 — and up to $3,000 of that loss can be used to offset your ordinary income. The additional $2,000 in losses can be shifted to next year’s return.

4. Give to charity

Although the tax law reduced the incentives for many households, there are still ways to maximize your tax savings.

For starters, if you itemize on your taxes – meaning your deductions exceed the 2019 standard deduction of $12,200 for singles and $24,400 for married couples – you can write off the value of your charitable donations.

5. Prepay tuition

Those with children starting college or graduate school, or even taking a single class, can prepay their tuition before Jan. 1 and use credits to reduce their 2019 taxes.

Whether you’re footing the bill for your child or planning to take a class to improve your own professional skill, paying for those courses ahead of time could give you break this year, Greene-Lewis said.

6. Contribute to 529 plan

Families saving for college should consider contributing to a 529 college savings account before the end of the year. While contributions to 529 plans are not deductible for federal taxes, more than 30 states and the District of Columbia may offer a full or partial deduction or credit for those contributions.

The deduction or credit can vary, depending on the state plan. In some cases, you have to contribute to your own state’s plan to get the deduction, but several states will allow you to deduct contributions to any state’s plan.

Bonus tip: Consider making a contribution to a 529 plan for your child or grandchild. It can be a tax-free gift for up to $15,000.

7. Open an ABLE account

More than 9 million children in the U.S. are estimated to have special needs — that’s 20% of households with children under 18.

Those with special needs and their families can contribute up to $15,000 a year in an ABLE account. If the person with the disability is working and does not participate in a workplace 401(k) or other retirement program, the annual limit is even higher. Money is put in after taxes, and earnings growth and qualified withdrawals are tax-free.

Similar to a 529 plan, these contributions won’t give you a break on your federal taxes, but many states do allow you to deduct your contribution to such savings programs.

Bonus tip: Some plans, such as the one sponsored by Massachusetts, have zero minimums to open the account, as well as no annual maintenance fees.

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