— Steven M. Piascik, CPA, MT
With just over 60 days left in 2015, it’s time to plan your year-end checklist that may help you save tax dollars if you act before December 31. For individuals and businesses, there are some great moves that should be considered. This week, let’s start with year-end individual tax planning.
- Realize (Harvest) losses on stocks while substantially preserving your investment position. One way this can be done is by selling an original holding, then buying back the same securities at least 31 days later.
- Postpone income until 2016 and accelerate deductions into 2015. These include child tax credits, higher education tax credits, and deductions for student loan interest.
- If you believe a Roth IRA is better than a traditional IRA, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA. Keep in mind, however, that such a conversion will increase your Adjusted Gross Income (AGI) for 2015.
- If you converted assets in a traditional IRA to a Roth IRA earlier in the year and the assets in the Roth IRA account declined in value, you could wind up paying a higher tax than is necessary if you leave things as is. You can back out of the transaction by re-characterizing the conversion — via a trustee-to-trustee transfer. You can later reconvert to a Roth IRA.
- Ask your employer to defer until 2016 any year-end bonus you might receive.
- Consider using a credit card to pay deductible expenses before December 31. You can pay them later, but still deduct in 2015!
- Ask your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before December 31 – if you expect to owe when you file your return next year. This will increase your itemized deductions, as well as save you penalties, if you instead pay these taxes when your returns are filed.
- Consider taking an eligible rollover distribution from a qualified retirement plan before December 31.
- Consider applying a bunching strategy to “miscellaneous” itemized deductions, medical expenses and other itemized deductions.
- Consider paying contested state and local taxes before December 31, allowing you to deduct them this year while continuing to contest them next year.
- Consider settling an insurance or damage claim in order to maximize your casualty loss deduction this year.
- Increase the amount you set aside for next year in your employer’s health flexible spending account (FSA).
- If you can make yourself eligible to make health savings account (HSA) contributions by Dec. 1, 2015, you can make a full year’s worth of deductible HSA contributions for 2015.
- Make gifts sheltered by the annual gift tax exclusion before December 31 and thereby save gift and estate taxes. The exclusion applies to gifts of up to $14,000 made in 2015 to each of an unlimited number of individuals.
Not all of the above actions may apply to your particular situation, but you (or a family member) will likely benefit from many of them. Before implementing any strategies, be sure to consult with a qualified and experienced certified professional accountant (CPA) to discuss any actions you are considering.
Stay tuned next time for my recommendations of Year-End Tax Moves for Businesses!