1. Review Your Portfolio– Allowing taxes to dictate your investment strategy is rarely a good idea. But if you’re already considering selling appreciated securities or other assets, cutting them loose by year-end could save you money. If you’re in the 0% -15% tax bracket, you’ll pay 0% onlong-term capital gains andqualified dividends.In 2015, you’re eligible for the 0% capital-gains rate if your taxable income is $37,450 or less if you are single, or $74,900 or less if you are married filing jointly, or $50,200 or less if you are head of household.
Taxpayers in higher brackets should look for losses to offset investment gains as well. Offsetting gains is particularly important to taxpayers in the 39.6% tax bracket (taxable income over $413,200 for singles; $464,850 for married couples), because they face taxes of up to 23.8% on dividends and long-term capital gains, not the 15% rate that applies to most investors. However, don’t sell shares to lock in a loss with the intention of buying them back right away. The IRS “wash sale” rule bars you from claiming the loss if you buy the same or a “substantially identical” investment within 30 days of before or after the sale. Capital losses from wash sales are not deductible but instead are taken into account in figuring your cost basis in the stock you acquired in the wash sale.
2. Contribute to your 401(K), IRA or SIMPLE IRA– Money you contribute to your 401(k) or similar employer-based retirement plan (if it’s not a Roth) is excluded from your income, lowering your tax bill. For 2015, workers can contribute up to $18,000 (or $24,000 for 50 or older) to employer-based plans, $5,500 to the IRA ($6,500 for 50 or older), and $12,500 ($15,500 for 50 or older) to SIMPLE IRA.
3. Give to Charity– This is a great time of year to clean out your closets and garage, but you can write off donations to a charitable organization only if you itemize deductions. If you contribute $250 or more, you’ll also need an acknowledgment from the charity. If you donate a used car worth more than $500 to charity, your deduction will be limited to the amount the organization receives when it sells it. But you may be able to claim a bigger deduction based on the vehicle’s fair-market value if the charity uses it to deliver meals, for example, or gives it to a needy individual. The charity will list the vehicle’s sale price, or whether an exception allowing a higher deduction applies, on Form 1098-C, which you must attach to your tax return. Because of previous abuses, donations of used cars and other noncash items may attract extra scrutiny from the IRS. So keep all your records.
4. Estimated tax– If you expect that you’ll owe money when you file your 2015 tax return next spring, you can avoid an underpayment penalty by boosting your withholding now or pay estimated tax. You needn’t pay every penny of the tax you expect to owe. As long as you prepay 90% of this year’s tax bill, or 100% of last year’s tax bill (whichever is lower), you’re off the hook for the penalty. However, if your 2015 adjusted gross income topped $150,000, you’ll have to prepay 110% of last year’s tax liability to avoid a penalty. A penalty will not apply if the tax shown on your 2015 return is less than $1,000.
5. Spend your FSA– Last year, the Treasury Department and IRS changed the rules so employers can allow people to carry over up to $500 in their accounts from one year to the next. Companies can choose to make this change, but they’re not required to do it. If your employer didn’t make the change and doesn’t offer a grace period, it’s time to clean out your FSA account. Remember that you can no longer use flex funds to pay for over-the-counter medicines, such as aspirin, ibuprofen or allergy meds, without a prescription (except for insulin). But that restriction does not apply to other nonprescription medical items, such as crutches, contact-lens solution or bandages.
6. Avoid the kiddie tax– congress created the “Kiddie tax” rules to prevent families from shifting the tax bill on investment income from Mom and Dad’s high tax bracket to junior’s low bracket. For 2015, the kiddie tax taxes a child’s investment income above $2,100 at the parents’ rate and applies until a child turn 19. If the child is a full-time student who provides less than half of his or her support, the tax applies until the year the child turns age 24.
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