December is your last month to make many tax moves that will reduce your tax bill and increase your refund next year. Carve out some time during this busy holiday month to make sure that you are set-up for doing your 1040 tax preparation for individuals next year.
Max Out Your Retirement Plan
Pay yourself this December by maxing out your retirement accounts. Putting money into an IRA, 401(k) or 403 (b) will directly reduce your taxable income. The money you put into your retirement comes out before taxes, and thus can help bring down the amount of taxable income that you have, and could even lower the tax bracket that you belong to.
Additionally, paying yourself first this December is a great gift that you can make to yourself. Contributing to your retirement each year helps increase the amount of money that you can earn from your retirement accounts and will ensure that you are well-taken care of during your retirement years.
You can contribute up to $18,500 to your 401(k) or 403(b)account if you are under 50, and up to $24,500 if you are over age 50. You can contribute up to $5,500 to an IRA account if you are under 50, and up to $6,500 if you are over 50.
Use the Money in Your Flexible Spending Account
If you still have money in your flexible spending account that goes towards your health expenses, make sure that you spend the money in that account. Some employers allow for a grace period of three months so you can use the money in your account through March 15, 2019. However, not all employers take advantage of this grace period offered by the IRS.
If you have money to spend in your flexible spending account, refill prescriptions, purchase any over-the-counter medication you need, visit your dentist, and take care of any vision needs as well. You don't want to lose the tax-free money that you put into this account.
Pay Your Medical Bills
Additionally, if your medical expenses reached more than 7.5% of your income costs, you can deduct any medical expenses over that percentage of your income. If you have high medical bills that would put you over the 7.5%, it may be worth it to pay those medical bills now instead of waiting if you help you lower your taxable income this year.
This December, if you have money to contribute to your retirement accounts, consider maxing out your contributions. If you had high medical bills this year, consider paying them off so you can benefit from the deduction that come when you have high medical bills. Finally, if you have money in your flexible spending account, find out what the deadline is for spending it and get to work spending that money so you don't lose the tax benefits that came from your contributions.