5 End of Year Tax Saving Strategies
Christmas is still a week away and many people are still cocooned in the rush of holiday shopping, party planning, and general stress and festivities. However, another important milestone is just around the corner as well – the end of 2015.
The end of the calendar year is also the end of the taxable year and thus any chance you have of lowering your tax bill in April expires when the clock strikes midnight on December 31st. Financial and investment blogs love to harp on the “last minute” opportunities available to those looking to reduce their tax bill by the maximum allowed. Their advice, though incredibly sound and totally worth it for the portion of people to whom it applies, often falls on deaf ears as it relates to concepts such as “harvesting losses” which make very little sense to most people.
Indeed, for most Americans (probably about 75% of them) the end-of-the-year milestone is rather insignificant. There is no “harvesting losses” if you don’t have investments. And, in most cases, in order to take advantage of added deductions, you need to itemize your return. You also need to have free cash lying around to invest or donate (i.e. don’t spend your credit card payments on tax deductions).
However, there may be more opportunities to save on your taxes than you think. That’s why it is still important to assess the savings potential now (while it’s still 2015) and ask yourself if any of these common end-of-the-year tax savings strategies apply to you.
1. Charitable Deductions
The tax-deductible charitable donation is a common move for many individuals and businesses looking to redirect their money to causes other than the government. In fact, many charities fund up to 40% of their budget in the month of December because of this phenomenon.
The basic premise is that every dollar you give to a qualified charity is a dollar you can deduct from your income to lower your tax bill. This only works on the federal level if you itemize your deductions. At the state level this rule varies, however. For example, Arizona offers an additional tax deduction (above the standard) for donations to specific charities, many of which service low-income populations. So it may be worthwhile to check your state’s rules if you have extra cash.
2. Retirement Contributions
You don’t need to itemize to take advantage of retirement income contributions. This is because both Traditional IRAs and 401(k) plans deduct money before taxes (because you pay taxes on distribution), and thus decrease your income and your associated tax bill.
For 2015, if you participate in an employer-sponsored 401(k) plan, you are allowed to contribute a maximum amount of $18,000 if you are under age 49 and $24,000 if you are age 50 or above. The limits for Traditional IRAs, which you set up through a financial institution, are $5,500 and $6,500 respectively. So, if you have a Christmas bonus coming (and you haven’t already spent it) consider using it to maximize your 401(k) or IRA contributions.
3. FSA Funds
If your employer-sponsored healthcare includes a flexible savings account, also known as an FSA, the funds you have in there usually “expire” on December 31st. Federal law allows users to roll over up to $500 in an FSA from year to year, but the ability to do so is at the discretion of your employer. So, it’s important to check that out. If your FSA is set to expire, though, now is the time to get that new pair of glasses or take your kids to the dentist (call soon, though!)
4. Energy Efficiency
Energy efficiency upgrades, including the addition of solar panels, upgraded appliances, and improvements to windows and doors, save money over time on their own. And with all the holiday sales going on, it may be possible to get a great deal on critical upgrades to your home, especially in the days after Christmas. By taking advantage of holiday deals, you can enjoy significant savings while also improving the comfort and energy efficiency of your home. To learn more about upgrading your home’s doors and windows, visit https://www.universalwindowssyracuse.com/front-doors-syracuse-ny and explore your options today.
However, you may be able to double-dip on the savings if your state offers tax breaks or if you make any of the improvements sponsored by the federal government. While it may be too late to install solar panels this year, many states offer breaks for appliance purchases, window installation, and more. Check out what you can qualify for at energy.gov.
Windows keeps conditioned air from escaping from buildings and limit heat transmission in both directions for energy efficiency. You can hire an experienced window contractor available via Lifetime Exteriors.
For other home improvement projects, consider working with experienced contractors like KV construction LLC, who can offer their expertise and quality craftsmanship to bring your vision to life.
5. Educational Contributions
If you have a 529 college savings account for your children or grandchildren, certain states offer an income credit for qualified contributions. The extent of the credit varies widely from state-to-state, including contribution limits and the fine print regarding how the deductions work. Tax breaks also only apply if you use plans that are sponsored by your state.
However, this is another good use of a Christmas bonus if you can spare it. For those, like me, who live in New York, check out nysaves.org, which is what I use for my own kids. Others can access details about their state at the Saving for College website.
