As the year winds down, there is nothing more important than discussing year-end tax strategy. Building communication between yourself, your CPA, and your investment advisor will guarantee you are a winner come April 15. Far too often, poor decision making and bad planning will lead to a big bill from the IRS. I’ve compiled a list of five powerful tips you can use now to help reduce your tax bill next year.
- If you had any big losers in the market this year, consider “realizing” these losses, and preserving your investment position by purchasing back that same security 31 days later.
- Consider using a credit card to pay deductible expenses before the end of the year. The IRS operates on the “year of swipe” principle. So while you will not receive the bill for these expenses until 2016, you can benefit from the deduction in 2015.
- Apply strategy to your itemized deductions. In some states, and cities (like Austin, Texas), you can make your property tax payment between October and January. If planned correctly, you can double your real estate tax deduction every other year, while still taking advantage of the standard deduction for in-between years.
- Defer income and accelerate your deductions. Ask your boss to hold on to that year-end bonus until January or have your employer bump up your last few 401k contributions. Other strategies for accelerating your deductions include increasing the amount you set aside for next year’s FSA or, if eligible, make a full years worth of HSA contributions before December 1, 2015.
- If you made a Traditional to Roth IRA conversion earlier in the year, and the value of the assets has since declined, you could wind up paying a higher tax than necessary. You can combat this by backing out of the transaction, and re-characterizing the conversion. Later, you can reconvert to a Roth.
Stay tuned for more tax planning tips as we wait for information on any “extender legislation” for temporary tax rules set to expire Dec 31.
For more information on year end planning, contact Paul Glantz, CPA at email@example.com