FOR 2015 INCOME TAX RETURN
IT’S the last quarter of 2015 and in a few months during income tax season, you would want to minimize any income tax dues as much as possible. After all, for most individual taxpayers, paying in increments is much better than paying in lump sum.
Below is a checklist of year-end tax planning actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you (or a family member) will likely benefit from many of them. Our office can help to narrow down the specific actions that you can take. Contact us at your earliest convenience so that we can advise you on which tax-saving moves are best for you.
In the meantime, please review the following list of 15 tax planning strategies for individuals:
• Maximize charitable donations. Donations to qualified charities are generally fully deductible for both regular tax and AMT purposes, and they may be the easiest deductible expense to your tax advantage. Donations could be made through cash, check, property or even used stuff you no longer need. Make sure though that you are donating to a qualified organization recognized by the IRS and get proof of your donation. For large donations, discuss with your tax advisor which assets to give and the best ways to give. Besides tax benefits, nothing could compare to the happiness giving emits.
• Postpone income until 2015 and accelerate deductions into 2015 to lower your 2016 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2015 that are phased out over varying levels of adjusted gross income (AGI). These include child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2015. For example, this may be the case where a person’s marginal tax rate is much lower this year than it will be next year.
• Stop working overtime until you could ascertain that doing so will not bring you to the next tax bracket. You might earn an extra few hundred dollars but will end up paying a thousand dollars in taxes due to a higher bracket.
• Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later. It may be advisable for us to meet to discuss year-end trades you should consider making.
• Consider a Roth Conversion. If you believe a Roth IRA is better than a traditional IRA, and want to remain in the market for the long term, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your adjusted gross income for 2015.
• Defer a Bonus. It may be advantageous to try to arrange with your employer to defer a bonus that may be coming your way until 2015.
• Use your credit cards. Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2015 deductions even if you don’t pay your credit card bill until after the end of the year.
• Increase withholdings. If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2015 if doing so won’t create an alternative minimum tax (AMT) problem.
• Take an eligible rollover distribution from a qualified retirement plan before the end of 2015 if you are facing a penalty for underpayment of estimated tax and having your employer increase your withholding isn’t viable or won’t sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2015. You can then timely roll over the gross amount of the distribution, i.e., the net amount you received plus the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2015, but the withheld tax will be applied pro rata over the full 2014 tax year to reduce previous underpayments of estimated tax.
• Bunching miscellaneous deductions. You may be able to save taxes this year and next by applying a bunching strategy to “miscellaneous” itemized deductions (i.e., certain deductions that are allowed only to the extent they exceed 2% of adjusted gross income), medical expenses and other itemized deductions. Qualified medical expenses include insurance premiums, Donations to qualified charities are generally fully deductible for both regular tax and AMT purposes, and they may be the easiest deductible expense to time to your tax advantage.
• Settle an insurance claim. You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.
• Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retired plan) if you have reached age 70- 1/2. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn.
• Increase your Flex spending. Increase the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year.
• Accelerate your HSA contribution. If you are eligible to make health savings account (HSA) contributions in December of this year, you can make a full year’s worth of deductible HSA contributions for 2015. This is so even if you first became eligible on Dec. 1, 2015.
• Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. You can give $14,000 in 2015 to each of an unlimited number of individuals but you can’t carry over unused exclusions from one year to the next. The transfers also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.
As a reminder, not all of these strategies will apply to you. To determine the best actions based on your specific circumstances this year, please contact our office, at (323) 356-3803 or (818) 956-7079 or visit us at our office located inside the Eagle Rock Plaza, 1st Floor, next to Macy’s: 2700 Colorado Blvd., Suite 150, Los Angeles, CA 90041 and ask for JR Joaquin or check our website at www.evangelinegiron.net.
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Evangeline is the Founder and Principal Consultant of Evangeline Giron, Inc., an eight-year old corporation providing income tax and legal document services in the heart of the Filipino-American community in Los Angeles – the Eagle Rock Plaza. Her company proudly serves a diverse client base of approximately 2,200 Filipinos, Americans, Armenians, Hispanics, among others. She has a huge client base of entertainment industry professionals gained by referrals through the years. Evangeline holds a degree in Mass Communications and Master of Science in Financial Services and is a CTEC Registered Tax Preparer.
Evangeline Giron, Inc.’s office located inside the Eagle Rock Plaza, 1st Floor, next to Macy’s, The company has been located in the mall for 8 long years.