Sunday, August 2, 2015

Smart tax moves to make now

 No one wants to think about taxes, but thinking about it now, rather than next April can save you money.
Mid-year Financial Assessment
Consider any income events this year that could benefit from planning before year-end. A bonus or new job with higher pay, investment gains or Roth IRA conversion, for example, could potentially push you into a higher marginal tax bracket. Joint filers with an adjusted gross income exceeding $250,000 could also find themselves subject to the additional 3.8 percent net investment income tax and 0.9 percent Medicare tax.
Deductible retirement contributions.
It's an easy first resort to reduce taxable income. For 2015, you can contribute up to $18,000 into a 401(k) or 403(b) plan, with an extra $6,000 in catch-up contributions possible for people are 50 and older. Traditional IRA contributions may also be deductible, depending on your modified adjusted gross income and whether you (or your spouse) are covered by a retirement plan at work. For 2015, those contributions max out at $5,500, plus an extra $1,000 for people age 50 or older. Small business owners may evaluate various retirement plan vehicles depending on their business structure and goals. A SEP IRA retirement plan account that can be funded for 2015 up until their tax filing deadline (including extensions). Simple IRA retirement plans must be established by October 1st for the current year. Fund a Health Savings Account (if applicable) A Health Savings Account (HSA) combines High Deductible Health Plan (HDHP) insurance with a tax-favored savings account similar to a medical flex spending account but with advantages. If you are eligible, an HSA may allow for lump-sum deposits or increased contributions up to the maximum $6,650 in 2015 for families, plus an extra $1,000 for people age 55 and older. Contributions reduce taxable income and allow tax-free withdrawals for eligible medical expenses.
Realizing a Tax Loss
Review your non-retirement investment holdings and consider realizing (selling) investments that are currently at a loss. Taxpayers can use this strategy to offset / reduce their capital gains. Even if you don't have realized gains for the year, you can deduct up to $3,000 in capital losses against other income and carry forward any remaining losses into future years. Note -- Be aware of wash-sale rules that restrict repurchasing the same investment within 30 days to be eligible for the tax deduction.
Charitable Contributions
Helping others and reducing your taxes is a true win – win. If you itemize deductions on your tax return, charitable contributions can directly reduce your taxable income (subject to certain limits). To benefit even further, consider gifting appreciated investments held longer than 12 months that you can gift to your 501(c)3 non-profit and avoid the capital gains tax that would normally have been paid while taking the full market value of the security as the donation. Donor-advised funds may be another appealing option, letting you take a deduction this year and decide in future years how that donation will be distributed.