Friday, October 16, 2015

Make these 3 moves before December 31; Save on taxes later

We're rapidly approaching the end of the year, which means we're focused on helping our clients make the best moves to help reduce their 2015 tax burden. 
Here's what to do:
Max out your 401(k) contributions. Per the IRS, you can contribute up to $18,000 to your 401(k) in 2015 -- plus an extra $6,000 if you're age 50 or older. That's a hefty $24,000 in savings. But you only have until Dec. 31, 2015, to make these contributions and get the attendant tax deduction.
If you simply can't get your act together before Dec. 31 but still want to save in tax-smart retirement accounts, rest easy. You have until April 15, 2016, to make tax-deductible IRA and Health Savings Account contributions. But be warned: Both savings vehicles' contribution limits are much lower than the 401(k) limits.
Organize to itemize. Every year you must decide whether you'll take the standard deduction on your income taxes or itemize your personal deductions. In 2015, the standard deduction is $6,300 for singles and $12,600 for those married filing jointly.
Examples of allowable itemized deductions include: some medical expenses (if they exceed 10 percent of your adjusted gross income -- or 7.5 percent if you're age 65 or over), state and local taxes, and charitable contributions.
If you want to itemize, you'll have to be organized, which means keeping track of every potential tax deduction to help ensure that they exceed the standard deduction. After all, if the total doesn't exceed the standard deduction, there's no point in itemizing.
Donate appreciated stock to charity. If you're charitably inclined and thinking about selling some appreciated stock to cover your typical donation, consider donating that stock directly to the charity of your choice. Why? They'll get the full benefit, instead of having a portion of it shaved off by the tax man. And -- if you itemize -- you'll reap the benefit of the full amount for tax deductions.
Here's how it works. Say you're in the 25 percent tax bracket, and you want to donate $10,000 to charity. If you sell Stock XYZ to obtain those funds, and you've held that stock for over a year, 15 percent of that $10,000 will be taxed at the long-term capital gains tax rate. In effect, you'll have only $8,500 left to donate.
If you donate $10,000 worth of Stock XYZ directly to charity, the charity would get the full $10,000 gift, as charities aren't subject to capital gains tax on donated assets. On top of that, you'd get to deduct the full $10,000.
While there's still plenty of time to make moves to lower your 2015 tax bill, remember that tax planning should ideally happen year-round, and applicable tax strategies vary widely from person to person. Consult a financial adviser or tax strategies specialist to learn what may be most beneficial for you on a year-to-year basis.
The information presented in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.