It is hard to believe that 2015 is almost over!. Although the year is almost over, there are still some tax planning that can be done that will help to lower your taxes if you take action before December 31. In addition, by implementing these year-end tax planning tips now, you will be one step closer to a long-term strategy that may also benefit you in 2016.
1. Get Organized
The first step towards putting your tax strategies in place is to organize. Begin putting together your 2015 information now. You’ll want to be sure that you have relevant receipts, cancelled checks, income information, contribution acknowledgement letters, investment income forms, and settlement statements from the sale or purchase of your home, etc.
2. Giving to Individuals
You can give up to $14,000 to as many individuals as you like before December 31 without the need to file a gift-tax return. If you are married, you and your spouse can give up to $28,000 per recipient without the need to file a gift-tax return.
3. Giving To Charities
Many individuals use this tax-reduction strategy of contributing to charitable organizations before the end of the year. You will need receipts for all contributions made, not just those over $250. You can also consider donating stocks or mutual funds that you’ve held for more than one year and no which longer fit your investment goals. If a charity cannot accept a gift in the form of appreciated stocks or mutual funds, another consideration is to set up a donor-advised fund.
4. Itemized Deductions
Consider adjusting the timing of certain payments such as medical expenses, property taxes, and charitable contributions.You can accelerate certain expenses by making payments before the end of 2015 or delay certain payments into 2016 so that larger amounts fall within one year. Keep in mind that medical expenses for 2015 are deductible to the extent they exceed 10% of your adjusted gross income and that charitable contributions are deductible for 2015 if credit cards are charged or checks are mailed by December 31.
5. Set Up Retirement Accounts
If you are self-employed, you can take advantage of the same opportunities to save for retirement on a tax-deferred basis as employees who participate in company plans. There are a variety of plans including SEP IRAs, Keoghs, and solo 401(k) plans into which you can put some of your self-employment earnings.
6. Contribute the Maximum Amount to Your 401(k)
Contributing the maximum allowable amount to your 401K plan will reduce your taxable income for the current tax year and allow your earnings to grown on a tax-deferred basis. Contributions to your 401(k), 403(b), 457, or employer-sponsored plan must be made by December 31.
7. Take Your Required Minimum Distribution
A Required Minimum Distribution (RMD) is the amount of money that must be withdrawn from your retirement account if you are over the age of 70. As a retiree, it’s critical to ensure you are keeping up with RMDS as they are required by law; you cannot keep retirement funds in your account indefinitely.
8. Make The Most of Losses
If you’ve experienced losses this year due to the stock market, mutual funds, or other investments, it’s possible to offset them with capital gains. Look through your taxable investment accounts and consult with a professional to determine your options. Be sure to remember the “wash sale rule” which prohibits taxpayers from recognizing losses on sales of securities that are repurchased within 30 days.
9. Defer Income or Bonuses
If you’re nearing the top of your tax bracket, you might ask your employer to hold bonuses until January. This may prevent the need to pay more in taxes. Another option might be to hold off on selling assets that will produce a large capital gain until 2016. Just be sure to consult with a tax professional and review your tax situation and future anticipated earnings to determine if a deferment makes sense for you.