- Now is when we’re consumed by purchasing and accumulating possessions, but you can save a lot of money by cleaning out your closets and garage and cleaning up your financial statements.
- Making smart gifts, timing your capital gains, and accelerating charitable pledges and state tax payments can all pay off big in the long run.
- Before making important year-end decisions, seek out tax counsel, a CPA or firms like ours to see how many of these seven tips below can help you and your family save money.
What’s the biggest difference between December and April, besides the weather? That’s right, December is tax savings month, whereas April is tax paying month. Here are seven of my favorite tips for being tax savvy and proactive.
- Capital gains. If you are in the zero percent, 10 percent or 15 percent brackets—that’s under $75,000 for joint filers ($37,500 for single filers)—then there is no federal tax on your capital gains. If you’re under those thresholds and need cash for any reason, consider taking capital gains this year. It’s a great deal.
- Charity. This is a great time of year to clean out your garage, attic and closets so you can donate those used items to charity. If you do it before year end, you can write off your donation on your tax return for this year. Also, consider accelerating payment of multiyear pledges you’ve made to your favorite charities this year. You’ll save more taxes from those itemized deductions.
- Gifts. You can make tax-free gifts of cash (or appreciated stock) up to $14,000 a year to anybody you want. If you make those gifts to children or grandchildren and if they’re in lower tax brackets, but you’re not, then they could save on taxes. For more on smart gifting, see my post about this topic from last year.
- Roth conversion. Converting a regular IRA to a Roth IRA. Why would you want to do that? If you’re in a low tax bracket now, you’ll pay minimal taxes now to convert—possibly zero—rather than a potentially large tax bite when you are required to take distributions from your retirement accounts at potentially higher rates.
- Max out your 401(k) for 2015. If you’re working and you have a 401(k), you can sock away up to $18,000 in your retirement account for this year (up to $24,000 if you’re 50 or older). Contributions to 401(k)s reduce your taxable income.
- Tax penalty relief. Many times people get caught because they had a lot of taxes in a particular year and they faced penalties for underpayment of taxes. Generally, you have to pay 90 to 110 percent of what you paid the previous year to avoid any IRS red flags. To avoid that trap, consider accelerating some federal and state taxes into December (i.e., before tax year 2015 ends) to avoid those underpayment penalties for this tax year.
- Accelerate state income taxes. If you’re facing a big tax event this year, consider paying your state income tax right now in December and getting a federal deduction for this year rather than waiting for 2016. You’ll save on taxes now and get an actual benefit in April of next year.
Those are 7 quick tips. The most important tip though is: Always seek out tax counsel, a CPA or firms like ours before making important year-end financial decisions. We’ll be happy to walk you through your tax situation to see if any of my seven favorite tax-saving tips can be applied to you.
Until next time, enjoy. Gary
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