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Year End Tax Savings Tips


on 12/7/2016

Couple tax planningThe leaves have fallen, the nights are longer and there’s a sharp hint of the coming winter in the air. Everyone knows what that means: it’s year-end tax planning time!

While most people don’t start thinking about their taxes until February or even April, the best time to make changes is before the New Year. 



For most tax matters, changes made by December 31st are assumed to be in effect for the whole year.  

Remember, no one can offer you accurate tax advice without a careful review of your finances.  For most people, though, a little bit of knowledge is enough to get started paying less to Uncle Sam and keeping more in your bank account.

Here are four areas of tax planning you should aim to tackle as quickly as you can.

Make any necessary changes to your retirement accounts.

If there’s anything that is more forward thinking than tax planning, it’s retirement planning.   Still, one of the most compelling reasons for making contributions to your retirement is preferential tax treatment.  The contributions are made pre-tax and therefore may lower your income tax bracket. For starters, you should be contributing the maximum to either a Traditional or Roth IRA.

You also need to make sure you’re contributing to your employer’s 401(k) program. Those contributions are also made pre-tax – so you can deduct your portion of any matching funds from your tax burden. If you haven’t been contributing, see if you can make “catch-up” contributions to take advantage of the preferential tax treatment.


Spend your “use-it-or-lose-it” funds

Many employers offer plans like Flexible Spending Accounts (FSA). These programs also offer preferential tax treatment, but many of them empty out at year-end whether you’ve used the funds or not. These programs are a great way to save for unplanned medical problems, but if you were lucky enough to avoid those costs, you’ll need to spend that money before it goes away.

There are a few common tricks you can use to spend the money without wasting it. Obviously, if you’ve been putting off a minor medical procedure that’s the easiest place to spend the funds. Otherwise, you may need to get creative.  Consider giving first aid kits as Christmas gifts or donating them to community programs.


Plan your charitable contributions

If you’re going to donate to a charity, you can give in a way that maximizes your tax benefit.

A gift to a qualified charitable organization may entitle you to a charitable contribution deduction against your income tax if you itemize deductions.

If the gifts are deductible, the actual cost of the donation is reduced by your tax savings. For example, if you are in the 33% tax bracket, the actual cost of a $100 donation is only $67 ($100 less the $33 tax savings).

Less common donations such as stocks and property (houses, buildings, land, etc.) allow you to take a tax deduction for the full value of the gift – and avoid paying the capital gains tax. Not-for-profit organizations don’t have to pay the capital gains tax, so they can sell it for the full amount. This means you get to take the deduction for the full value of the gift. This is also true if you plan to give or use another complex giving strategy to maximize the value of your contribution. 

However you give, make sure you keep detailed records about your gifts. You want both a receipt from the organization and another form of proof, like a copy of a check or a bank statement. Not-for-profit organizations are almost always overworked and understaffed, so keep your own records just to be safe.


Investigate early tuition payments

You or your child may have a big tuition bill coming due in a few months. If you wait to pay that until February or March when it comes due, you may miss out on a chance to cash in on the American Opportunity credit. The plan replaces the Hope credit and allows for a $2,500 deduction and as much as a $1,000 credit for eligible expenses for four years of undergraduate study.  If you are a student filing for the first time and don’t have much of an income, paying your Spring tuition now could result in a $1,000 check right around the time spring break rolls around.  

Don’t let the year come to an end without taking advantage of these easy tax tips.  You and your bank account will be glad you did.  Our team is here to help you start investing for retirement, saving money for education, or setting up your own Health Savings Account (HSA). Be sure to start the New Tax Year off right!

 

© Genisys Credit Union and www.genisyscu.org, 2016.  Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited.  Excerpts and links may be used, provided that full and clear credit is given to Genisys Credit Union and www.genisyscu.org with appropriate and specific direction to the original content.

 

SOURCES:http://abcnews.go.com/Business/10-year-end-2014-irs-tax-moves-make/story?id=26279865&page=3
http://www.nj.com/timesopinion/index.ssf/2014/10/rossi_now_is_the_time_for_year.ht
http://wgntv.com/2014/10/06/your-money-matters-end-of-year-tax-planning-tips/
http://www.golocalpdx.com/business/personal-finance-year-end-tax-planning-ideas
http://blog.turbotax.intuit.com/2011/07/25/can-you-deduct-401k-savings-from-your-taxes/
http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-Retirement-Savings-Contributions-Credit-%28Saver%E2%80%99s-Credit%29

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