End of year tax planning for 2015
December 31st 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 31st.
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
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