Year-End Tax Saving Tips
With the end of the year approaching, now is a good time to start your tax planning to help you maximize benefits and minimize taxes. Here are some tips you can use to save money when tax time rolls around next year.
1 | Donate to a good cause
Donating cash, property, clothing, household items or other goods is one way to trim your next tax bill. If you donate this year, you can deduct the amount when you pay your taxes in April 2016. Be sure to get your check in the mail or put the gift on a credit card before the end of the year to ensure you can write it off. Save your receipt, cancelled check or credit card statement so you can take full advantage of your charitable giving and get a written record from the charity if your donation is more than $250. An organization must be a qualified, so check the status of your charity of choice on IRS.gov.1
2 | Spread the wealth
The gift of giving doesn't have to stop at contributing to organizations. Take advantage of eligible gifts such as making a gift for someone's education, funding medical bills for others, or gifting appreciated stocks and/or securities. You can give up to $14,000 per individual to as many people as you'd like and pay no gift tax. This amount doubles to $28,000 if you give a gift with your spouse. If you are funding a 529 plan, you can frontload five years worth and put $70,000 into a child’s account now. Just be sure that if you make a gift by check that the check clears by December 31, as the gift is considered "given" the year the check is cashed. This strategy does not provide a tax deduction on your tax return but will reduce your taxable estate, if any. If you make a gift to any one individual exceeding the $14,000 exempted amount, you must file Form 709 Gift Tax Return by April 15th.
3 | Speed up deductions
Making an extra mortgage payment or paying off outstanding medical bills is a great way to offset your tax bill before the year ends. Even if they aren't due until next year, any payments you make before December 31 are deductible on this year's tax return. This is especially smart if your income will be high this year. Just make sure you aren't subject to the Alternative Minimum Tax (which generally applies to high-income or upper-middle income households) and that you plan to itemize your deductions.
4 | Defer income
Deferring payments and income until next year is an option if you are close to a lower tax bracket. That will lower this year's taxable income. You could also take advantage of this potential tax break by requesting to receive your year-end bonus check after the new year or waiting to cash in mature savings bonds. If you are self-employed, defer payments by delaying billings until close to the end of the year. You won't be taxed this year on what you receive after January 1.
5 | Top off retirement accounts
Consider raising your 401(k) contributions to the maximum amount allowed to help reduce your tax liability. You can make contributions for this year through April 15 for both traditional and Roth IRAs. Check with your Legend Financial Professional for the traditional IRA deductibility and Roth IRA eligibility. For 2015 taxes, you can save $18,000 in a 401(k) plan, or $24,000 if you’re 50 or older. You can contribute $5,500 dollars to an IRA or $6,500 if you’re 50 or older. If you can’t swing it this year, think about raising your contribution rate now to make sure you hit the max next year. If you run your own business and want to save in a solo 401(k), you must adopt that plan by Dec. 31, though you can still fund it through your tax filing deadline, including extensions.
The bottom line on tax savings
Preparation is the key to having a tax season that is free of frustration and mistakes. It also helps to make sure that you receive all of the tax benefits for which you are eligible. Everyone's financial circumstances and needs are unique, so it's a good idea to carefully consider your choices and consult an experienced tax professional. But remember, if you want to keep more of your money next year, now is the time to think about ways you can reduce Uncle Sam's share of your income.
Lincoln Investment does not provide tax, legal or estate planning advice.