I recently had my tax appointment with my accountant and realized just how much of a tax savings I had because of the smart things I did with my investments. The great thing here is that the things I did to help keep my tax bill low weren’t difficult to do.

Ways to Reduce Taxes through Investing

Here are some tips to reduce taxes through investing for you to take advantage of before the tax deadline.

reduce taxes through investing

(Photo Credit: Pong/FreeDigitalPhotos.net)

Put Money Aside for Retirement

I know, we’ve all heard this one, but you hear it because it works. For me, it works especially well since I’m self employed and contribute to a solo 401k. This allows me to not only put away the typical $18,000 limit as an employee, but I can contribute more as an employer.

In the couple years I’ve been working for myself, I never have been able to contribute the absolute max to this plan, but I sock away as much as I can.  If you are in the 25% tax bracket and contribute $4,000 to your 401k at work, you just saved yourself $1,000 in potential taxes. To me this is no-brainer. You save for retirement and you save on taxes.

Read More: Can You Have a 401k and an IRA at the Same Time?

Pick Smart Investments

Mutual funds are a good option for many investors. You invest with a little bit of money and get professional management and are diversified from the start. But mutual funds don’t allow you to control capital gains.

Even if you don’t sell any of your holdings during a given year, chances are you still will have capital gains. It might look nice to get a couple hundred dollars when a mutual fund distributes a capital gain, but the downside is that you are taxed on that money.

To avoid this, you should look into exchange traded funds (ETFs). Many of these don’t pay out capital gains, only dividends. This will help you to keep your tax bill in check at the end of the year.

Now, don’t go run out and change all of your investments. You should slowly transition over to ETFs because if you sell your holdings in a taxable account, you will owe taxes on any gains you have.

This doesn’t apply to investments held in retirement accounts, since any income you earn from investments is tax deferred until you begin to withdraw the money.

Read More: Do You Know the Difference Between an ETF and a Mutual Fund?

Pay Attention To Asset Allocation

Asset allocation is making sure your portfolio is well diversified and working at the best it can to grow for you over time. One area that is sometimes overlooked by investors is what investments are where. This is important because it can have a large impact on your taxes.

In general, you should have assets that are the least tax efficient in retirement accounts and those that are most tax efficient in non-retirement accounts. So what does this mean?

If you invest in a bond portfolio that doesn’t hold government or municipal bonds, you want to make sure this is held in a retirement account. This is because bond funds pay off interest each month and that income is treated as ordinary income. So if you are in the 25% tax bracket, the monthly distribution the bond fund pays is taxed at 25% as well if you don’t have it in a retirement account.

Furthermore, you want to keep high turnover holdings in a retirement account too. These funds tend to throw off lots of capital gains, which you owe taxes on. You can find out what you fund turnover is by looking at a site like Morningstar.

Read More: What is a Backdoor Roth IRA?

Sell Some Losers

Another way to save on taxes through investing is to sell some holdings that declined in value when you have any realized gains. You are allowed to use the losses to “cover” the gains. In other words, when you add the loss to the gain, it will result in a lower ending number. This lower ending number is what you owe taxes on.

The nice thing is that you can use these losses to offset other income too, but only to an extent. The IRS allows you to offset $3,000 of ordinary income each year with capital losses.

So let’s say you have a capital gain of $5,000 and a capital loss of $10,000. You can use $5,000 of that loss to offset the $5,000 gain, bringing it to zero. You can then take another $3,000 of your capital loss to offset your ordinary income. This leaves you with a loss of $2,000 which you are allowed to carryover into future years. You can either use it on capital gains next year or against ordinary income.

Read More: 3 Benefits of Tax Loss Harvesting

Donate Investments

One final option for investors to reduce taxes through investing is to donate securities. In this option, you can donate your holdings to a donor advised fund. With this option, you simply transfer holdings over to a donor advised fund. Once the assets are in this fund, you can instruct how you want the money to be divided up or what charity or charities you want it to go towards.

The reason this is a smart option is because you don’t have to realize any gains you earned when you donate. For example, let’s say you want to donate $10,000 to a charity. You have an investment that you bought for $2,000 and it is now worth $10,000. If you donate that $10,000 investment from your portfolio, you get to write off the $10,000 as a charitable deduction.

If you were to sell the holding and then make the donation, you would still get to deduct the $10,000 charitable donation, but you would also have to pay taxes on the $8,000 gain you realized when you sold the investment.

Read More: What to Do With Your Required Minimum Distribution

Final Thoughts

When it comes to taxes, there are many ways you can reduce your taxes through investing. Not all of these options will apply to everyone, but you should be able to use a couple of them to your advantage. Make sure you are doing all you can to keep your taxes low. The less you pay in taxes, the more money you keep in your pocket.

More Tax Topics

Self employed tax deductions are an important part of offsetting your extra income when filing your federal tax return. For example, if you are flying for business, one of the 7 Commonly Overlooked Tax Deductions is baggage fees!

An old business partner wanted to know what he needed to keep track of for his venture into self employment. I ran through the list of self employed business deductions I have used in the past to get him started.

The tax deadline is just around the corner; many of you could also benefit from this information. This list is not a complete list, but rather the deductions that I routinely use. Most of the deductions are taken on Schedule C unless otherwise noted.

You can use TurboTax to enter your tax deductions yourself or you can provide the amounts to your tax accountant.

Self Employed Tax Deductions

  1. Internet Access. Both at home and in coffee shops that you work at for WI-FI access.
  2. Website Expenses. Fees paid to purchase domains, hosting, and other fees associated with running a website.
  3. Cell Phone. You cannot deduct the primary phone line at your house, but if you have multiple lines or a cell phone you use for business, the extra lines are deductible.
  4. Contract Labor. Independent contractor’s that you hire to complete work are not employees, but the payments can be deducted.
  5. Computer. Did you buy a new business laptop before December 31? If so, it’s deductible.
  6. Advertising. Advertising costs are deductible. This includes prizes for giveaways if you purchase the prizes.
  7. Tax and Accounting Software. Software you buy to keep the books for your business is deductible. I use Quickbooks.
  8. Filing Fees. You can deduct fees you pay to the state to maintain your business license.
  9. Postage and P.O. Box Fees. Don’t want your business mail going to your home address? Set up a P.O. Box and deduct the cost.
  10. Office Supplies. In addition to postage, you can deduct the cost of paper, pens, etc.
  11. Mileage. You can deduct business mileage on your personal car. Make sure you keep good records.
  12. Business Meals. Business meals are deductible at a rate of 50%.
  13. Retirement Contributions. Contributions to a Solo 401k or other qualified plan are deductible.
  14. Self Employment Tax. Half of the self employment tax you pay can be deducted.
  15. Home Office Deduction. If you work from home, you can deduct the costs associated with maintaining an exclusive home office on form 8829 as a Home Office Tax Deduction. You can include a portion of real estate tax, mortgage interest, insurance, maintenance, utilities, office furniture, casualty losses and depreciation.
  16. Health Insurance. Part of your self employed health insurance costs are deductible if you were not eligible to take part in an employer-subsidized health plan. However, to determine the amount, there is an iterative calculation if you also qualify for the Health Insurance Premium Tax Credit.
  17. Cost of Goods. If you are selling products on Amazon or any other platform, don’t forget to deduct the product costs when they are sold.

More Self Employed Tax Topics

Do you have to pay income tax on social security? How will it impact the taxes on your other income from interest and dividends?

Whether or not your social security benefits are taxable depends on your total income and filing status. In addition, it changes from year to year, so while your social security benefits may have been tax free last year, you could owe tax this year.

My grandma found herself in that very situation one year and was shocked she would owe tax on her social security benefits.

How Social Security Benefits Are Taxed

If Social Security is Your Only Income. There are general rules for the minimum income to file taxes based on gross income. However, gross income doesn’t include social security benefits; as long as Social Security benefits are your ONLY income, your benefits are not taxable.

You’ll get a SSA-1099 form which shows the amount of social security income you received.

Social Security Plus Other Income

If you have other income besides your social security, we’ll have to dig a little deeper:

When Social Security Benefits are Taxable. If you have other income in addition to your social security benefits, you’ll need to use the following formula to determine if your social security is taxable.

You must file a tax return if the following calculation is true:

1/2 (Total Social Security Benefits) + All Other Income > Base Amount

The Social Security base amounts are:

  • $25,000 (single, head of household, qualifying widow with dependent child, married filing separately who did not live with their spouses at any time during the year)
  • $32,000 (married filing joint)
  • $0 (married filing separately, but lived together)

When Social Security Benefits are Not Taxable. And in the reverse situation, you do not need to file a tax return, and your social security benefits are not taxable if the following is true:

Half of your Social Security plus all your gross income from other sources is less than or equal to $25,000 (or $32,000).

What is All Other Income?

In the calculation you have to add all other income to half the social security benefits. What is included in all other income? Almost everything. Be sure to include:

  • Taxable pensions
  • Wages
  • Interest and Dividends
  • Other taxable income
  • Tax-exempt interest
  • Interest from U.S. savings bonds
  • Employer-provided adoption benefits
  • Foreign earned income or foreign housing

Social Security Tax Filing

If you will have to file a tax return, you can see how much tax you will owe on your social security benefits using the Tax Calculator.

The free edition of TurboTax works well for filing simple returns with social security benefits, or you can figure it by hand, like my grandma prefers!

More Tax Topics

Obamacare, or the Affordable Care Act is now in the third year of providing health insurance. However, it’s only the second year of reconciling the health care requirements and the health insurance premium tax credit on your tax return.

The fee, or insurance penalty tax, for going without health insurance increases each year. Here’s how to determine if you need to report the penalty on your tax return and how much it might be.

Health Insurance Penalty Fee

If you went without health insurance last year, you’ll be subject to an annual fee. The fee does not provide health insurance and is assessed after the year is over when you file your tax return. The penalty fee is calculated based on your Modified Adjusted Gross Income and is due with your tax return on the tax deadline. For more background the penalty fee see our introduction to the Penalty for No Health Insurance.

How Much is the Penalty for No Health Insurance?

The tax penalty for no health insurance varies by year. Penalty tax by year is the higher of:

  • 2014 insurance penalty fee: 1% of income or $95 per adult/$47.50 per child (up to $285 per family).
  • 2015 insurance penalty fee: 2% of income or $325 per adult/$162.50 per child (up to $975 per family).
  • 2016 insurance penalty fee: 2.5% of income or $695 per adult/$347.50 per child (up to $2,085 per family).
  • 2017 insurance penalty fee: Increases will be based on inflation.

The fee is calculated per month and includes household members you claim as dependents. For each full month without coverage, you’ll pay 1/12 of the above fee.

Penalty Maximums

The maximum penalty using the % of income is the national average premium for a Bronze plan. The average price of a Bronze plan is:

  • 2014: $2,448 per person.
  • 2015: $2,570 per person.
  • 2016: $2,699 per person.

Where to Pay the Penalty

You will report the health insurance premium tax credit penalty on your tax return.

Minimum Essential Coverage

You do not have to pay the penalty if you have minimum essential coverage. If you have insurance already through a job or the government you won’t have to worry about the penalty. This includes marketplace health insurance, individual insurance, health insurance through an employer, COBRA, Medicare, Medicaid, CHIP, Tricare and veteran health insurance plans.

Exemptions to Avoid Paying the Obamacare Penalty Fee

You will not need to pay the penalty for Obamacare fee if you qualify for any of the following:

  • Unaffordable Insurance: If the insurance would cost more than 8% of your income.
  • Short Gap: If you go without insurance for less than 3 months of the year.
  • No Filing Requirement: If your income is below the minimum income to file a tax return.
  • Hardship Exemption: The exchange certifies that you suffered a hardship including that you would qualify for Medicaid but your state has chosen to not expand Medicaid.
  • Member of Select Groups: If you are a member of a recognized Indian Tribe, healthcare sharing ministry, religious conscience sect member, incarcerated, or not lawfully present in the US.

More Health Insurance and Tax Topics

The 2016 tax deadline for your 2015 tax return is on April 18, 2016.

Why is the Tax Deadline Not on April 15?

Emancipation Day Holiday. Sometimes the tax deadline is delayed due to the Emancipation Day holiday. This year the tax deadline is extended for everyone even though all states do not observe the holiday. Emancipation Day is on Friday April 15 this year.

Weekend Days. In addition, the tax deadline is also extended when the traditional April 15 deadline falls on a Saturday or Sunday. In this case it would be on the next business day (Monday).

This year, the tax deadline is extended for both Emancipation Day and weekend days.

Tax Deadline Postmark

Whether or not you meet the tax deadline is based on the postmark on your taxes. You must have your taxes postmarked by the deadline, but the IRS doesn’t need to receive your taxes by the 2016 tax deadline. If you are using TurboTax, and plan to mail your taxes, deliver it to the post office before closing time on April 18, 2016.

Make sure you check the address if you mail your return on tax day 2016. The IRS changed the mailing address for many taxpayers a couple years back.

If you efile, you’ll also need to submit your return electronically by April 18.

Tax Extensions

How to File for a Tax Extension. If you file for an extension, your tax return will be due six months after the April tax deadline. The tax deadline for extended returns this year is October 15, 2016. You can file Form 4868 to get an automatic extension. However, you still have to pay the tax due by the original tax deadline on April 18.

Tax Deadline Extras

While you are working on your tax return, there are some other deadlines that fall on the same day as the tax deadline.

Retirement Contributions. The tax deadline is also the deadline for making contributions to your IRA and Roth IRA.

Estimated Tax Payments. If you make estimated tax payments, the April tax deadline is also the same day that that estimated tax payments are due for first quarter.

More Tax Filing Information

Tax Refund Dates. Once you file your tax return, see the tax refund cycle chart to find out when to expect your refund.

Refund Delays. Stay updated on refund delays and keep it in mind when you file.

Tax Filing Online

Now that you know when the 2016 tax deadline is, you can file your tax return online with TurboTax.

More Tax Topics

Usually filing taxes for the kids is an afterthought. Only after people scramble to finish filing in time for the tax deadline do they realize they didn’t even think about the kids. Let’s put in on the radar earlier this year. Will you remember to file taxes for your kids?

If your kids earn interest and dividends, or have a job, check out the requirements for filing taxes.

2015 Kids Tax Filing Requirements

If you claim your child as a dependent on your return, the kids need to file taxes if ANY of the following are true for tax year 2015 (due in 2016):

  • Earned income, from a job for example, is more than $6,300.
  • Unearned income, including dividends or interest, is more than $1050.
  • Self employment net earnings are more than $400.
  • Earned and unearned total income is more than the larger of $1050 or earned income plus $350.

Also, if interest, dividends and other investment income are more than $2,100 in 2015, you’re going to get hit with the kiddie tax (which means you’ll pay your tax rate on part of your child’s income).

Filing a Child’s Tax Return

You can file your child’s taxes for free at TurboTax.

If you want, you can also attach it to your return if the income is less than $10,500 and only from interest or dividends. This option is available to children under age 19 (or a full time student under 24) using Form 8814.

A word of caution though, qualified dividends or capital gains may be taxed at a higher rate if you attach it to your return instead of filing the child’s return separately.

More Filing Requirements

There are other circumstances when children must file a tax return. For more information see Publication 929, Tax Rules for Children and Dependents.

For more information when others must file, see minimum income to file taxes.

More Tax Topics

Did you recently start your own business and need to learn how to calculate your self employment tax to file your tax return?

If you are an individual who is self employed, you have many advantages over people who are employed by companies. Of course, you get to set your own hours and rates, which is something many other employees cannot do. However, at the same time, you will be required to pay your own self employment taxes, which can be somewhat complicated if you have never done so before. But don’t worry; once you walk through it, it’s pretty painless. Let’s walk through how to calculate self employment tax.

Self Employment Taxes

People who are self-employed differ from those employed by an outside company in that they do not have a portion of their salary deducted from their pay. Therefore, there is no withholding of money toward taxes or for Social Security or Medicare. If you work for an outside company, the company pays half and the individual pays half of the Social Security and Medicare taxes. However, when you are self-employed, you must pay the entire amount of Social Security and Medicare taxes yourself. This is known as self-employment tax.

Self employment tax is separate from and in addition to state and federal income tax rates. Self-employment tax must be paid in addition to your regular income taxes. Self employment tax is applicable at any age, and you are still responsible for paying self employment tax, even if you are already receiving Social Security benefits.

Self Employment Tax Rate

The self employment tax rate for 2015 is 15.3%. (12.4% for Social Security tax and 2.9% for Medicare tax). Since 2013 there is also an additional 0.9% Medicare Surtax that applies to earnings over the threshold for high earners.

How to Calculate Self Employment Tax

Calculating your self-employment tax is not as difficult as it may seem. Once your net earnings from self-employment are at least $400 (or church employee income of at least $108.28), you are responsible for paying self-employment taxes and filing a tax return. Here is how to calculate the self employment tax:

  1. Determine your net income. The net income for your business is income minus any of your expenses related to your work. For instance, if you have purchased a laptop and printer for your business, you are entitled to tally up the costs of them and other work related expenses and deduct them from your income. For a list of common expenses see Tax Deductions for the Self Employed.
  2. Calculate Net Earnings from Self Employment. To do this, multiply the net income by 92.35 percent.
  3. Calculate Self Employment Tax. Next, for any income less than the social security wage base (2015 and 2016: $118,500) multiply the amount by 15.3%. For any amount over the wage base, multiply by 2.9%. Add the two figures together to arrive at your self employment tax.

Self Employment Tax Calculator

If you don’t want to calculate your self employment tax by hand, you can use the tax calculator to calculate it automatically. In addition, if you are using tax software like TurboTax, the software will also calculate your self employment tax automatically.

Self Employment Tax Form to Use

When you are ready to file your taxes, you will need the Schedule SE for self-employment taxes. The self employment tax form is in addition to your regular Form 1040 and business Schedule C for profit or loss; they are all due on the same tax deadline.

Self Employment Tax Deduction

In addition to paying the self employment tax, you also get a personal tax deduction for paying it! You can deduct half of the self employment tax, which will lower your adjusted gross income, and lower your income tax.

More Self Employed Topics

We’re pretty familiar with the tax deadline on April 15 (although it’s extended to Monday, April 18, 2016 this year). However, the first day to file taxes each year often depends on what Congress has done recently with any new laws that were implemented. This year is no different as congress signed new legislation at the end of December to extend various tax laws another year.

When is the Earliest You Can File Taxes?

The IRS announced the first day to file 2015 year taxes in 2016 will be on January 19, 2016.

Is there a delay this year?

The IRS is currently predicting an on time start to filing season. A few years ago, there was an IRS Tax Delay after the government shutdown.

Will the tax deadline be extended if there are delays?

No. Delays to the start of tax season usually do not lengthen the tax filing season; the tax deadline will still be April 18, 2016. You can request a tax extension if you need additional time to file.

When is the earliest I can file my taxes by paper?

If you file your taxes on paper, can you file before the first day? No. Tax returns, including paper returns, will not be processed before January 19. E-filing will still be the faster option to get your tax refund. The earliest you can file your taxes is set for January 19 for all filing methods.

Why Would You Want to File Your Taxes Early?

If you are expecting a tax refund the sooner you file the sooner you’ll get your refund. You can use our 2015 Tax Calculator to project your tax refund.

Also, if you need your completed tax return to show your income for other financial decisions, you’ll be able to complete those transactions sooner. This is usually necessary for financial aid applications for college students or mortgage applications if you are self employed.

Why you might need to know the first day to file taxes.

If you are feuding with an ex-spouse over dependents, be prepared that he or she may plan to file the first day to try to claim dependents.

You should be aware that the first to file a tax return will be able to claim dependents. If you are entitled to claim a dependent, and someone else files first claiming them, when you file using the same SSN you’ll get an error message. This doesn’t mean that you won’t be able to claim them, but be prepared with documentation to prove you are the correct person to claim the dependent and your tax filing status.

Filing Your Taxes Early

What do you need to file on the first day?

Even if you want to file on the first day, you must have your paperwork, including your W2 Form from your employer before you can file. If you don’t receive your W2, you can file a substitute W2 using Form 4852, but only after February 14.

In addition, if you are claiming the health insurance premium tax credit, you’ll need your forms to claim the health insurance premium tax credit. Otherwise, you’ll be subject to penalties for no health insurance.

Can you enter your information earlier?

Yes, many tax preparation programs, including TurboTax, will let you begin working on your tax return before the first day to file. You can enter your information, but you will not be able to file your tax return until the first day to file.

Will your tax refund be delayed?

Normally, you can expect your tax refund in 21 days: How Long Does it Take to Get Your Tax Refund? If the IRS issues an update, I’ll let you know!

When do you plan to file your taxes?

More Tax Filing Questions

How much money do you have to make to file taxes? What is the minimum income to file taxes?

Let’s take a look at the requirements for the minimum income to file taxes in 2015 (and due in 2016).

2015 Minimum Income Requirements

The IRS released the minimum income to file taxes in 2015.

For the 2015 tax year, you will need to file taxes if your gross income meets the minimum income for your filing status and age. Here are the minimum income limits for the 2015 tax year.

How Much Money Do You Have to Make to File Taxes 2015

Filing Status Minimum Gross Income
(under 65)
Minimum Gross Income (65+)
Single $10,300 $11,850
Head of Household $13,250 $14,800
Married Filing Jointly $20,600 $21,850 (one spouse)
$23,100 (both spouses)
Married Filing Separately $4,000 $4,000
Widow with Dependent Child $16,600 $17,850

This table does not apply to dependents. See When Do Kids Need to File Taxes? for minimum income to file taxes for children.

Once you find out if you meet the minimum income to file taxes, you can determine your tax rate using the current tax brackets.

Social Security Income

Gross income doesn’t include social security benefits.

However, there is an exception to this rule if half of your social security benefits plus your other gross income is more than $25,000 ($32,000 if married filing jointly). Once that happens, you’ll need to file a 2015 tax return. Married filing separate also have different social security rules. For more information, see Do You Have to Pay Income Tax on Social Security?

Other Income Sources

There are special rules for self employment earnings and church earnings. You must file taxes if your:

  • Self employment net earnings are greater than $400.
  • Church earnings are greater than $108.28 and are exempt from employer Social Security and Medicare.

If you are self employed, you will also need to file and pay self employment tax.

Filing Requirement for Health Care Responsibility

The filing requirement for health insurance continues this year. If you received advancements of the health insurance premium tax credit to pay for health insurance, you will need to file a tax return. Here’s how to reconcile your payments and Claim the Health Insurance Premium Tax Credit. In addition, you will also report any penalties for no health insurance on your tax return.

More Tax Filing Requirements

Optional filing. Even if you are not required to file a tax return, you can choose to file one. You may want to file an optional tax return if you had any federal withholding or are entitled to tax credits, like the earned income tax credit or the Health Insurance Premium Tax Credit and want to get a refund.

Other filing requirements. In addition to the income requirements, there are other circumstances when you must file a tax return. One example is if you sold your home. For all the requirements, see Publication 17.

When to file. If you earn enough money to file a tax return, you must file your tax return by the tax deadline. However, you cannot file before the first day to file taxes.

After you file. Once you file, you can see How Long Does it Take to Get Your Tax Refund Back?

2015 Tax Calculator

If you are under the minimum income to file taxes, and are unsure whether or not filing your taxes will benefit you, use our Tax Calculator to compute your tax liability and refund.

Tax Filing Online

Now that you know how much money you have to make to file taxes, go ahead and file your free federal and state taxes online with TurboTax!

It’s time for end of year tax planning! Time to get your financial house in order for tax season! What could be more fun that taking a break from holiday festivities and shopping to start thinking about taxes?

It seems like every year when we do our taxes, there’s a few things we wish we would have done in December to reduce our tax bill just a little more. Sound familiar?

That’s where a little end of year tax planning results in great rewards!

Here’s an updated list of money moves to make before the new year.

Year End Tax Moves

  1. Run a preview. Before the end of the year run an estimate using the tax calculator or Turbo Tax. If you wait until the new year, it’s often too late to go back and make changes. Start running projections now before the year end!
  2. Bump up contributions to retirement plans. Contribute more to your 401k by the end of the year to reduce your taxable income and your tax bill.
  3. Plan for health insurance changes. The penalty for no health insurance goes up each year. If you qualify for the Health Insurance Premium Tax Credit here’s How to Claim the Health Insurance Premium Tax Credit on your tax return.
  4. Take your losses. Did you lose money on your investments? If so, you might as well sell them and take the capital loss. Commonly referred to as tax loss harvesting, losses (that exceed gains) are capped at $3,000, but you can carry them forward into future tax years. To understand why you might do this, here are 3 Benefits of Tax Loss Harvesting.
  5. Take your gains. Once again, you can pay 0% long term capital gains if you are in the 10% or 15% tax bracket. If you are planning to sell, you might as well do it before year end if you fall in this tax bracket!
  6. Review investment tax rules. Don’t forget about the 3.8% Investment Tax on investment income, including capital gains and dividends, that kicks in for high income filers. If you are subject to the investment tax pay close attention to your end of year strategy to realize gains and losses.
  7. Prepay your mortgage and real estate taxes. Even if your payments aren’t due until January, you can pay them in December to deduct this year, if you itemize. Should you pay this year or wait? For more information, see how to determine if you should accelerate your property tax deduction into the current year.
  8. Give away your money. If you were planning to give a lot of money to someone special, utilize your annual gift exclusion of $14,000. More than that and you are subject to the gift tax.
  9. Use your flex spending money. The use-it-or-lose it rule makes your money disappear if you don’t use it. Check your plan for the deadline to incur costs and submit reimbursement requests. If you don’t know what to spend your money on, see the list of ways to use all of your flex spending account. It’s also a good time to remember to enroll in your 2016 flexible spending account if you haven’t done so already. The $2,550 flex spending plan limit will stay the same for 2016.
  10. Donate. We all know we can donate clothes, books, and household stuff to Goodwill. But dig deeper and you might be able to find more ways to make a charitable donation. For example, I like to remind newlyweds that you can donate wedding dresses and attire to take a tax deduction. Be sure to research the charity to make sure you know how your donations will be used.
  11. Finalize your records. If you plan to deduct mileage on your personal car make sure your mileage logs are complete. Remember you will save yourself time by being organized! Review how long you need to keep your paperwork before throwing out any records.
  12. Review your checklist. I keep an end of year tax planning and finance checklist. The checklist comes in handy to determine what needs to be done each year to keep our finances in order. If you don’t have an annual list, now is a great time to make one. Just write everything down as you go.
  13. Make 529 plan contributions. If your state has a deduction for 529 plan contributions, make your contribution before year end.
  14. Do an AMT analysis. If there’s a chance that you will be subject to AMT, analyze your deductions to see if you are better off waiting to make some of the above moves.
  15. Close your IRA. While this one is very extreme, I keep it in the list to remind you to review the performance of your IRA. If you carefully evaluated the pros and cons, and decided to take a loss on an IRA, you must close your account before year end to claim your loss on your taxes this year.
  16. Fund your IRA. You have until the tax deadline to maximize your Roth IRA contributions. However, if you’re getting an end of year bonus, it might be a good time to stash it away!
  17. Convert your IRAs. After running our tax estimates, I determine if it makes sense to make a Roth IRA Conversion. If you need to make one, don’t forget it needs to be done by the end of the year. In addition, if you are planning to use the Backdoor Roth IRA strategy this year, you also need to determine if you want to make your conversion by the end of the year.

Determine if You Need to Pay Tax or File

Finally, after you’ve reviewed all the end of year planning, review the requirements for filing and paying taxes. Finding out in April that you need to pay tax on unemployment, you made over the minimum income to file taxes, your kids need to file taxes or that your social security benefits are taxable aren’t usually welcome surprises. Do yourself a favor and review the requirements before the end of the year.

What additional moves are you planning to make for 2015 end of year tax planning?

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