4 Tax Moves To Make Now Before Filing

Woman in her 30s filling out tax information online.
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At the start of a new year, the last thing you probably want to add to your list of things to do is work on your tax situation. However, January is actually one of the most important months on the tax calendar.

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By taking some important steps in January, you can not only make things easier for yourself before you file your taxes this year, but you can also help make things easier when you file next year as well. Here are some of the most important tax-related steps you should consider getting out of the way every January.

Make a Prior-Year Contribution to Your IRA

For many retirement plans, the contribution window for any given year shuts down on Dec. 31. However, for IRAs, you can contribute any time before the tax filing date — which is typically April 15, but extends to April 18 in 2023.

This is an extremely generous provision that allows you to boost your retirement contributions after you have a preliminary look at where you stand tax-wise. For example, if you take a practice swing at your taxes and find that you’ll owe $1,000, you may be able to make a $3,000 or $4,000 IRA contribution and eliminate that liability altogether, depending on your tax bracket. Just be sure to note that you are making a “prior year” contribution at the time you put money into your IRA, otherwise your custodian may credit you with a contribution for the current year instead.

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Start or Increase Your Monthly Retirement Plan Contributions

If you haven’t yet begun contributing to a retirement plan, the only better time to start than yesterday is in January. Imagine you want to contribute $6,000 to your IRA over the coming year, for example. If you start in January, you’ll only have to set aside $500 per month to reach your goal.

If you’re already contributing to an IRA or 401(k) plan, January is a great time to start increasing your contributions. If you’re used to setting aside, say, 5% of your income every month, try boosting that percentage to 6% or 7%. You’ll likely hardly notice that small increase, but over the long run, it can significantly boost your retirement nest egg. You’ll also start reducing your tax bill for next year — or for this year if you are making prior-year IRA contributions before the tax filing date.

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Get Organized for Tax-Filing Season

Although April is usually referred to as “tax-filing season,” the reality is that you’re going to start getting tax documents as early as the end of January. But even before you receive your W-2s, 1099s and other tax forms, you’ll want to collect all of the important supporting paperwork to which you already have access.

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For example, if you’re an active stock trader, your brokerage will likely have all of your trade information on your year-end statements. If you’ve made charitable contributions during the year, January is the time to start assembling that evidence so you can support the deductions you’ll be taking when you file your taxes.

Review Your Carryover Tax Losses for Next Year

As mentioned above, your year-end brokerage statement should have information about your realized gains and losses for the prior trading year. In addition to pairing off your gains and losses, you can offset up to $3,000 of ordinary income when you file your taxes this year. However, if your losses greatly exceed your gains, you can carry over those additional losses into future years.

Knowing how much of a carryover loss you have in January is a great way to help plan your tax strategy regarding taking gains on your stock positions in the current year. For example, if you have a large amount of unrealized gains in your portfolio but you know that your carryover loss is significant, you can strategically sell those positions during the year to protect your profits while not triggering any tax liability. As this strategy can get advanced, you’ll likely want to speak with a tax advisor in January regarding your plans.

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.
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