The end of the year is the last chance to take several actions that would reduce your taxes. Below are five tax saving strategies to consider:
- Maximize retirement plan contributions
In 2015, you can contribute up to $18,000 to a 401(k) account ($24,000 if you are 50 or older). Consider making an additional contribution by December 31.
- Make charitable contributions
Any additional charitable contributions that you make before year-end will reduce your taxable income if you itemize your deductions. If you give appreciated stock that you have held at least one year, you can take a deduction of the market value at the time of the contribution and you do not have to pay tax on the capital gains that have built up.
- Defer your income
If you can defer a year-end bonus or billings until 2016, consider doing so. You may not want to do this if you think that you will be in a higher tax bracket in 2016.
- Sell losing investments
You can sell investments that have lost value to offset capital gains in other investments. You can deduct up to $3,000 in capital losses in any year if you file married filing jointly.
- Make sure you use up your flexible spending account
If you have a flexible spending account, use up the money that you have set aside for 2015 or you will forfeit the remainder. Some accounts have a grace period for a couple of months after the year to take 2015 distributions so check the rules of your account.
Consider the impact of these strategies on your overall financial situation. Consider talking to your tax advisor in order look at the impact on your specific situation. If your marginal income tax rate is 25%, every dollar you spend would save 25¢ in tax. This would be a net 75¢ out of your pocket. The tax savings may not be worth the cash outflow in your situation. Also, you should talk to your financial advisor before you sell any investments.
Please contact me at email@example.com to discuss any of these or other tax strategies or your tax preparation needs.