Are you scrambling for some tax savings before the end of the year? Act QUICK, before December 31, to increase your tax breaks! Whether you’re having a good year, rebounding from recent losses, or still struggling to get your feet on the ground, you may be able to save a load of money on your taxes if you make the right moves before December 31!
If you have tax questions, it is ALWAYS wise to call the professionals at Tax Alternatives. Here are some end of the year tips to help save you some money!
1. Defer Income – Income is taxed in the year it is received. It’s difficult for employees to postpone wage and salary income, but you may be able to defer a year-end bonus into next year – as long as it is standard practice in your company to pay year-end bonuses the following year. Self-employed? You have more leeway. Delaying billings until late December, for example, can ensure that you won’t receive payment until the next year.
Whether you are employed or self-employed, you can also defer income by taking capital gains in 2015 instead of in 2014.
Deferring income only makes sense if you think you will be in the same or a lower tax bracket next year. You don’t want to be hit with a bigger tax bill next year if additional income could push you into a higher tax bracket.
2. Take some last minute tax deductions – Contributing to charity is beneficial to both parties and gives you a tax deduction. Keep in mind, you MUST have a receipt for all deductions! Other expenses you can accelerate are a property tax bill due early next year or a doctor’s or hospital bill. Make sure you’ll be itemizing for 2014 rather than claiming the standard tax deduction. Unless the total of your qualifying expenses exceeds $6,200 (single) or $12,400 (married filing a joint return), itemizing would be a mistake. Contact Tax Alternatives before you make a commitment one way or another.
3. Beware of the Alternative Minimum Tax – Sometimes accelerating tax deductions can cost you money… if you’re already in the alternative minimum tax (AMT) or if you inadvertently trigger it. Again, rely on a professional CPA if you’re in doubt!
4. Sell loser investments to offset gains – A crucial year-end strategy is called “loss harvesting” -selling investments such as stocks and mutual funds to realize losses. You can then use those losses to offset any taxable gains you have realized during the year. Losses offset gains dollar for dollar.
If your losses are more than your gains, you can use up to $3,000 of excess loss to wipe out other income. If you have more than $3,000 in excess loss, it can be carried over to the next year. You can use it then to offset any 2015 gains, plus up to $3,000 of other income. You can carry over losses year after year for as long as you live.
5. Contribute the maximum to retirement accounts – Be smart. You should be contributing to your retirement account, anyways! Try to increase your 401(k) contribution so that you are putting in the maximum amount of money allowed ($17,500 for 2014, $23,000 if you are age 50 or over). If you can’t afford that much, try to contribute at least the amount that will be matched by employer contributions.
Also consider contributing to an IRA. You have until April 15, 2015 to make IRA contributions for 2014, but the sooner you get your money into the account, the sooner it has the potential to start to grow tax-deferred
6. Avoid the “kiddie tax” – A tax on a child’s investment income, which is taxed at the parents’ rate under certain conditions. This can be tricky, so call Tax Alternatives for more information on contributing to your children’s college funds!
7. Check IRA distributions – Taking money out of an IRA is referred to as a distribution. Since the account is intended for retirement savings, the tax advantages go hand-in-hand with keeping the money in the account until retirement. If you take the money out early, you’ll miss out on some powerful tax benefits and reduce what you may have available when you need it; you may also incur penalties. We don’t want penalties! Penalties equal monetary loss.
8. Watch your flexible spending accounts – Flexible spending accounts, flex plans, are fringe benefits which many companies offer that let employees steer part of their pay into a special account which can then be tapped to pay child care or medical bills. The advantage is that money that goes into the account avoids both income and Social Security taxes. The catch is the notorious “use it or lose it” rule.
With year-end approaching, check to see if your employer has adopted a grace period permitted by the IRS, allowing employees to spend 2014 set-aside money as late as March 15, 2015. If not, you can do what employees have always done and make a last-minute trip to the drug store, dentist or optometrist to use up the funds in your account.
This is a generalized list to help save you money on taxes this year! You should ALWAYS consult a professional before taking any drastic steps! Tax Alternatives provides bookkeeping, accounting and tax services for individuals as well as small business owners and companies desiring the advantages of accurate, well-organized records but without the complexities or costs involved in employing a full or part time bookkeeper. Contact us today at 615-742-1099. We’re located at 109 Westpark Drive, Suite 240 Brentwood, TN 37027.
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