Surprise parties are fun. Tax surprises are not which is why year end tax planning is so important. The complexity of year end tax planning is affected by changes in your life such as; a change in marital status, having a child, significant change in income and many others. Taking time at the end of the year to review income other than regular wages like dividends and other investment income ensures that you will have adequate funds available to cover any tax liability.
By discovering potential liabilities before the end of the year you will have the opportunity to take steps to offset some them. For example, cleaning out a closet for charitable giving or prepaying daycare expenses for the coming year are two ways to potentially offset liabilities. Year end planning affords the opportunity to make or increase traditional IRA contributions as well.
Another way to offset all or a portion of a tax bill is the opportunity to defer income until the New Year. The advantage of deferring income, salary, and bonuses until after the first of the year is that the tax implications of that income will not be fully felt for more than a year to come. This strategy provides an opportunity to save for the taxes associated with that income.
Contact your CPA or accountant today so you will have plenty of time to review your tax situation. A meeting with your tax professional before the end of the also provides the opportunity to become familiar with tax law changes that may have an affect on the upcoming year.