Friday, March 4, 2016

It’s tax time! Here are 3 things you need to know

Happy tax time, everyone.
For those enterprising folks who have already filed, congratulations. For those who will be spending some quality time poring over their receipts and income statements from last year, here are three things that you should keep in mind as you work to finish your return.
You have (slightly) longer to file this year.
April 15 has been engrained in our minds as Tax Day, but this year, you’ll have until April 18 to get your return in. Why has the filing deadline been delayed? Emancipation Day is being celebrated on the 15th, and since April 15 is a Friday, Tax Day gets pushed all the way back to Monday, April 18. This gives you an extra weekend at the end of tax season if you end up needing an extra day or two to finalize your return.
Some temporary tax breaks have been made permanent.
Some popular tax planning strategies that I’ve frequently implemented with my clients have been mostly living in limbo in recent years. These were temporary provisions that were set to expire but were eventually extended by Congress. After years of uncertainty, we now have some clarity as Congress has made many of these tax strategies (often referred to as “tax extenders” in legislative jargon) permanent.
Perhaps the most popular strategy made permanent is the ability to contribute your required minimum distributions (RMDs) from an IRA directly to charity. This allows you to satisfy your annual RMD requirement without having to report the distribution as part of your gross income.
An additional tax break made permanent is the ability to itemize state income taxes or state sales taxes (you can only deduct one). Typically, the income tax deduction offers the bigger break, although for snowbirds that claim primary residence in a state like Florida with no state income taxes, you can at least deduct the state sales taxes you paid.
Your tax bill isn’t locked in just yet.
I often stress to my clients the benefits of year-round tax planning, since many great strategies for reducing your tax bill need to be utilized by December 31. That said, it doesn’t mean that you’re without any tools to lower what may be an unruly tax bill. Contributions to a health savings account (HSA) and a tax-deferred IRA can still be made for 2015 until you file your taxes. Contributions can be made to a Roth IRA for 2015 as well; if you don’t need the deduction and have cash available, this is a good way to bolster your retirement savings.
There’s little that can be done to make filing your taxes a joyous activity, but hopefully this information will help make the process of filing your taxes more bearable and maybe even save you a little bit of money. If you have further questions, this is always a great time of year to speak with your tax advisor to help you be sure you’re taking advantage of all the strategies available to you.