11 Great End-of-Year Tax Gifts You Should Give Yourself

Alden Wicker

Why Making More Now Could Save You Money Later

In years past, an accountant would typically tell you to “defer” your income, which basically means pushing your income off so it hits your bank account in January 2013 instead of now. It’s not hard to see why–the less income you make in 2012, the less you’ll pay in taxes in April 2013.

This year, however, things are different. Since it’s very possible that taxes will go up in 2013, you want to make sure that as much of your income as possible comes in now–known as accelerating income–so it’s taxed at a lower rate. For example, selling stocks or collecting your freelance checks in December, instead of January, if possible.

What if the Fiscal Cliff Doesn’t Happen?

You may be wondering right now if this is akin to gambling with your money. You’re betting that taxes go up next year, but will you lose money if they don’t?

Nah, this is actually a pretty safe bet:

  • If taxes go up next year, a typical household would save about 5% of the income that’s accelerated into 2012. For example, if you’re able to shift your year-end bonus of $5,000 from January to December, you could save $250 in taxes.
  • If Congress passes legislation to keep taxes in 2013 at 2012 levels, it’s a wash–you’ll pay the same amount overall, just a little more this April and less in 2014.
  • If Congress lets some tax cuts expire, while keeping others in place, you’ll save less than you would if they let everything expire, but you’ll still save.

How You Can Accelerate Your Income

It’s not like you can ask your employer to pay out your 2013 salary early, but there are ways to shift some of your income. (Just be aware that these are general guidelines, and you should always talk to your tax professional before making any big moves.)

  1. Sell stocks now. If you’re planning to sell investments because, for example, you’re going to use that money to buy a home, do it now instead of January. Capital gains taxes, which are applied to the profits that you make from buying and selling stocks and mutual funds, are 15% right now–but they might jump to 20% next year. Even if you’re not planning to make a big purchase, you could still sell some investments that have been doing particularly well and lock in the gains, and then shift that money to another investment with better growth prospects. Just make sure that you’ve held all the investments you’re selling for at least a year. Otherwise, you’ll pay a higher short-term capital gains tax.
  2. Collect your freelance or contract income now. Try to convince a client or company to pay you in December instead of January, or complete a project earlier.
  3. Ask for your bonus now. This probably won’t fly at a big corporation, but if you work at a smaller company, talk to HR to see if you can get your year-end bonus in 2012, noting that it could save you a lot in taxes.
  4. Convert your Roth now. If you’re planning to convert your traditional IRA into a Roth IRA, it will be taxed–so do it before the end of the year.
  • Engchik

    this article is SO HELPFUL- esp the freelance section!!! THX! PS- those of us who freelance- keep track of everything!

  • Brianne Archer

    I’m pretty sure an HSA and an FSA are two different things. An HSA is an account that can only be created and contributed to if you have the right health insurance, like a high-deductible PPO plan. An FSA is a flex spending account that you can contribute to if you have any other insurance and the maximum for 2013 has been reduced to $2,500 as part of the Affordable Care Act. You can’t have both, it’s one or the other. The FSA is the use-it-or-lose-it account but the HSA can also work as a retirement slush fund to pay for your medical expenses in retirement un-taxed..

    BTW, are people still getting year end bonuses? I certainly haven’t seen one in years. 

  • http://www.facebook.com/profile.php?id=1467647784 Toni Bradley L

    An FSA is setup during open enrollment so you can’t just contribute whenever you want.  It’s an employer-provided benefit.  An HSA requires a particular high-deductible health insurance.  These are typically used by the self-employed.  I’ve used both.  HSA’s are also much more restrictive now than in the past. 

    For the new year, I’m taking advantage of a new pre-tax savings for premiums.  We have to buy health insurance for my husband outside of his work, which gives us no tax benefit.  Now, the dollar amount of his monthly premium will be withheld from my pay and deposited into a reimbursement account like an FSA and childcare savings.  Once it’s been paid, I can get reimbursed for what is in the account.  The first month will be tight because the funds have to be in the account to be reimbursed, unlike the FSA, but will save us tax dollars for the entire year.

    At this point in time, most people can make little difference to their current year tax situation.  If you want to truly help folks, LearnVest, run articles like this quarterly.  For people with FSAs, you might catch them during their open enrollment when they can make a change for the new year, and people also can have a little time to schedule doctor’s appointments when it can really happen versus at the end of the year when everyone is scrambling to get ready for the holidays and half of the office is already taking days off.  Stop running these types of articles at the same time as everyone else.  Everyone says the same thing.  Very, very few of these tips are useful for folks without a mortgage that gets them to the point of itemizing in the first place.