Happy New Tax Year?
Hold on, there’s still time to work on this year’s taxes!
It seems like I just asked myself, “Where did summer go?” and now, the end of the year is upon us. Before you know it, it will be April 15th. Are you ready for April 15th?
I know it’s hard to think about taxes this time of year, or any time of year, but there are advantages to planning ahead. Many of the strategies to reduce our tax bill need to be completed before December 31st. Thankfully, we still have some time left, so let’s get started!
Here are a few ways that may help with your tax liability:
Planning for Retirement
If your employer offers a retirement plan, contributing to it may be one of the easiest ways to reduce your taxable income. Your contributions to a 401(k), 403(b) or similar Qualified Plan will not only reduce your taxable income, but will grow in a tax-deferred account. The 401(k) contribution limit for 2014 is $17,500 if you are under the age of 50 and $23,000 if you are 50 or older. These contributions do need to be made by December 31st.
Depending on your income and tax filing status, you can also contribute to an Individual Retirement Account (IRA) to lower your taxable income. Although you have until April 15th to make your contribution for the previous year, the IRA needs to be opened prior to December 31st. The 2014 contribution limits are $5,500 if you are under 50 and $6,500 if you are 50 or older, again, depending on your income and tax filing status.
Give to Your Favorite Charity
Giving to your favorite charity can be rewarding in more ways than one. It’s wonderful to support causes that you feel passionate about and it’s an added bonus that the IRS gives you a break for it. Most charitable organizations are flexible, too, which makes it easy to give. Depending on the organization, you can give cash, securities, or physical items, which you will be able to deduct at fair market value. For securities that have appreciated, not only do you get the benefit of deducting the fair market value, you avoid paying capital gains tax on the appreciation. Giving really is rewarding so have fun picking out your favorite causes and remember to get a receipt, even when it less than $250, better to be safe when it comes to the IRS.
Give to Your Favorite Person
This won’t lower your tax liability this year, unfortunately, but will lower the value of your estate which could be beneficial in your overall estate planning process. For 2014, you can give $14,000 for the year to any of your favorite people. If you are married, your spouse can give $14,000 for the year to any of their favorite people. If you share the same favorite people, that’s okay, you can give $28,000 as a married couple to one person. Happy Holidays!
Losses Aren’t All Bad
Of course we love to see our investment accounts go up, but those gains do come with a price if they are outside of a retirement account. If you own a security that no longer fits your needs and hasn’t done well, you can sell it and use that loss against your gains. If you have more losses than gains, you can carry $3000 worth of losses forward each year. We review your accounts here, but let us know if you have any capital gains or losses elsewhere that we aren’t aware of and we will work with you on reviewing those too.
If you know you will have a different income or tax situation next year, it’s a good idea to review the details with your accountant now. There may be income or expenses that can be pushed to this year or next to maximize your tax deductions and credits. These can include employment bonuses, capital gains, medical expenses, and taxes. Your CPA will have the best advice for your situation.
The end of the year is busy, but these benefits are too great to not review. Give us a call if you have any questions or would like help reviewing your situation. We are here to help and hopefully thinking about our taxes now will make them a little more tolerable next year.
Gould Capital, LLC and Wells Fargo Advisors Financial Network are not tax or legal advisors.
Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.