YOUR 2015 TAX STRATEGY
MSN.COM
A few months ago, we suggested getting your tax strategy together before it was time to panic.
Well, it's time to panic.
We're less than a month to the end of 2015 and any plans you have to lessen your tax hit by the end of the year should probably be implemented now. Rebecca Pavese, a certified public accountant, financial planner and portfolio manager with Palisades Hudson Financial Group's office in Atlanta says that, at the very least, you should be calculating your income, tax payments and deductions to date, and estimating your totals for 2015.
“You need this baseline information before making any moves,” she says.
Once you've done that, the easiest way to save is by reducing your taxable income. Bankrate's Kay Bell notes that boosting your retirement savings can be particularly helpful. If you haven't made your maximum $18,000 contribution 401(k) ($24,000 for people age 50 or older) or $5,500 contribution for an IRA ($6,500 for people age 50+), now is the time.
“If your employer permits you to make extra contributions to your 401(k), put in as much as you can afford,” says Bill Ringham, vice president and senior wealth strategist at RBC Wealth Management. “You typically contribute pretax dollars, so the more you invest, the lower your taxable income. Your earnings also grow on a tax-deferred basis.”
Ringham also notes that 529 plan contributions are tax deductible in several states, so contributing to your kid's college fund will allow your earnings grow tax-free, provided they are used for qualified higher education expenses. Just make sure it's going toward college, however, as distributions not used for qualified expenses may be subject to income tax and a 10% penalty. Meanwhile, it's also time to take inventory of your other investments in 2015... and root for the losers.Tax-loss selling can minimize or eliminate capital gains on one asset by realizing a loss to offset it,” Pavese says. “There’s dollar-to-dollar offset. If for instance you’ve had $5,000 of capital gains, you can offset them completely with $5,000 of capital losses.”
The best part is that you can carry those tax losses forward indefinitely. If you don't need those losses to offset capital gains right away, you can use the excess loss to offset gains in a future year. That's particularly helpful since net capital losses (capital losses minus capital gains) can only be deducted up to a maximum of $3,000 in a given tax year. Any losses beyond $3,000 must be carried over, which also makes it worth your while to consider putting off selling some of your “winners” until next year.”
“Capital gains can increase your adjusted gross income — and, consequently, your tax bill,” Ringham says. “So if you are considering selling an asset that has increased in value, such as a stock, you may want to wait until January so the gain will be realized next year.”
If you're in a really desperate situation, there's also a chance you can just give some of those investments away. Highly appreciated stocks or mutual funds you’ve owned for more than one year can go directly to a charity, so if you've purchased shares for $1,000 and they are now worth $10,000, giving those share to a qualified charity would give someone in the 28% tax bracket a $2,800 tax deduction, based on the current market value of the donated shares.
“You benefit three ways,” Pavese says. “First, you’re doing good. Second, you won’t pay the capital gains tax you’d owe if you sold the security instead. And third, you’ll get a deduction if you itemize.”
