End of year tax planning for 2015

December 31^st is coming up which means you have little time to take advantage of opportunities to lower your tax bill. Here are some things you can do before the end of the year which will help you on your 2015 tax return:

Give to charity now

Giving money to charitable organizations is a great way to reduce your taxes. Be sure to get a receipt for any charitable gift over $250. To qualify for a deduction on your 2015 tax return, the gift must be made before the end of the year. If you are giving a check, make sure it is mailed before December 31^st.

Don’t forget that you can also get a tax deduction by giving non-monetary items such as clothing to places like your local thrift shop.

Education Saving Accounts

Currently, 34 states including New York give state tax deductions (not federal) for contributions to their respective 529 plans. In New York, taxpayers can take a deduction of up to $5,000 ($10,000 for a married couple filing jointly) for contributions to a NYS 529 plan. Your earnings in a 529 plan grow tax free. This is a great way to reduce your tax bill while also saving money for college.

Another opportunity before the end of the year is to contribute to a Coverdell Education Savings Account (ESA). Contributions to a Coverdell ESA are limited to $2,000 a year. Though there is no tax deduction for contributions to a Coverdell, your earnings in the account will grow tax free.

Getting rid of potential capital gains taxes

Capital gains taxes usually result from the sale of stock at a gain. Long-term capital gains (Gains on stock held for more than one year) can be taxed as high as 20%. Short-term capital gains are taxed at ordinary income rates which are higher than long-term rates.

Here are two ways to pay less capital gain taxes on stock transactions.

1)      Make charitable donations with appreciated stock

Instead of selling stock at a gain, an alternative would be to donate the stock to a charitable organization. This type of donation gives the taxpayer a double benefit. The first benefit is that the taxpayer does not have to pay any capital gains taxes on the donated appreciated stock. The second benefit is that the taxpayer gets a tax deduction based on the fair market value (FMV) of the stock on its date of contribution.

2)      Sell depreciated stock

If you have already sold appreciated stock during the year and are expecting a high capital gains tax liability, then a way to lower this liability would be to sell additional stocks at a loss. Capital losses will neutralize capital gains and thus lower your tax liability. Keep in mind, the maximum one can take for a net capital loss is $3,000 ($1,500 Married filing separately). This means that if you have $50,000 in capital gains, you are only allowed to take up to $53,000 in capital losses on your tax return. Any excess capital losses will be carried over to the following year and applied to next year’s capital gains.

These are only a few ways to lower your potential tax liability. Every taxpayer has his or her own set of specific circumstances and with it, different strategies on how to lower taxes. For questions on how to lower your tax liability, I can be reached at david@davidsilversmithcpa.com