2015 Year-End Tax Planning Strategies

Nov 17, 2015

Before 2015 comes to a close, take the time to consider potential year-end tax planning strategies, such as those discussed below.

Capital Gains and Losses

Assess your capital gains situation for the year and use the “netting” rules to minimize your taxes. If you have capital gains for the year, you can use capital losses to offset those capital gains, plus an additional $3,000 of ordinary income ($1,500 if married filing separately) annually. Moreover, you may carry forward unused capital losses to future tax years, subject to the same restrictions.

Prepay State Tax

Taxpayers who itemize on their federal returns may generally deduct any state income taxes paid during 2015. However, because the fourth estimated payment is generally not due until January, payment on the due date renders the deduction unavailable until the year it is paid. Instead, consider paying your fourth quarter payment by the end of December to increase your deduction for 2015. Or have more state income tax withheld from your pay before year-end if you expect to owe tax when you file your return. Note that these strategies aren’t beneficial to taxpayers subject to the alternative minimum tax.

Contribute More to Tax-favored Retirement Accounts

Employees enrolled in retirement savings plans who haven’t reached their plan’s contribution limit may want to increase their pretax contributions prior to year-end. Doing so would decrease their taxable income. For 2015, the IRS dollar limit on elective deferrals to 401(k), 403(b), and most 457 plans is $18,000, plus an additional $6,000 for those 50 and older. (Additional plan limits may apply.)

Fund a Health Savings Account

Individuals covered by a high-deductible health plan and who meet other eligibility requirements may make deductible contributions to their health savings accounts. Generally, for 2015, the limits are $3,350 for self-only coverage and $6,650 for family coverage. Contributions can be made until the account holder’s tax return due date (without extensions).

Take Required Distributions

Generally, individuals age 70½ or older who have IRAs or retirement plan accounts must take their required minimum distributions (RMDs) before the end of the calendar year. Failure to do so may result in a 50% penalty on withdrawals not taken.

Taxpayers who turn 70½ in 2015 may wait until April 1, 2016, to take their first RMD. However, because a second RMD would have to be taken before the end of 2016, you may wish to take your first RMD this year if it will help you avoid a higher marginal tax rate in 2016.

For more information on how our team can help you minimize your tax burden, call us today at (419) 891-1040

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