What is your 2015 income tax bill? Do you owe? Or are you expecting a refund? You don’t need to wait until April 15th to find out.
Strategic year-end tax planning starts with a tax estimate. From there see which tax tips can help you.
Year-End Tax Tips
- Increase your retirement contributions. 2015 maximum contributions to a 401(k) are $18,000 (or $24,000 if you are over 50). IRA contribution limits are $5,500 or $6,500 if over 50. Taxpayers with income up to $60,000 if married or $30,000 if single can also receive a tax credit by contributing to retirement accounts. This is an incentive to save.
- Charitable contributions to qualified charities can reduce your taxable income if you itemize. In addition, contributions to several Idaho charities provide an Idaho tax credit of $200 for single or $400 for joint (with or without itemization) Check http://tax.idaho.gov/s-results-form.cfm?doc=EIN00046 page 25 of Form 39R for a complete list of charities that qualify for this credit.
- Donate appreciated property such as stock for a win-win-win. You receive credit for the full value for the stock as your donation, while also avoiding capital gains and the Net Investment Tax. (Take Note: Donating stock takes some lead time to complete a donation. It isn’t as quick as writing a check. You can’t wait until December 31st.)
- Defer income or prepay expenses. Moving income and expenses from one year to the next requires evaluating both tax years. This option is easier for self-employed and owners of rental property. Make your January mortgage payment in December to decrease your current year taxable income.
- Maximize your contribution to a Health Savings Account. (Anything not spent carries over indefinitely.) Limits for singles are $3,350; families are $6,650.
- Bundle Medical Expenses. If you don’t have pre-tax options for medical expenses, consider bundling. For example, if you have a large medical expense like surgery, delay paying until the following year. Or do additional medical expenses in the same year.
- Payments made on a credit card are considered paid in the year the charge occurred. This includes medical, charitable and business expenses.
- Sell your stocks and mutual funds that are underwater if they are in a taxable account. (Retirement accounts are sheltered from taxes both for gains and losses.) You can offset any other capital gains with losses and take an additional $3,000 of loss against income. Any loss beyond the $3,000 allowed is carried over. This works for both stock mutual funds and bond mutual funds, but be aware, you cannot replace with the ‘same’ stock or mutual fund for a 30 day period. You may consider a similar or like stock or fund.
- Consider the timing of buying into mutual funds as year-end approaches. As a general rule, mutual funds pay out their capital gains at the end of the year. You want to buy after that dividend date is announced. Otherwise, you may only hold the fund for a month, but you get a year’s worth of capital gains.
Preparing a year-end tax estimate is helpful in focusing on your tax options. At a minimum, you want to be sure you have paid in sufficiently to avoid underpayment penalties.
Keeping good tax records is also helpful in reducing your tax bill. Keep receipts for cash expenses, charitable donations, medical expenses and employee business expenses.
Maintain a designated file folder for receipts and tax documents to make keeping track easier.
A few actions taken before year-end can reduce your tax bill. Be pro-active!
“I am proud to be paying taxes in the United States. The only thing is, I could be just as proud for half of the money”. — ARTHUR GODFREY