Timely Tax Tips

Maximize your savings with these year-end strategies!

Does tax season always seem to creep up on you, year after year? Few of us stop and think about income tax planning until we meet with our tax preparer early in the new year. But at that point, it’s too late to affect the outcome of your prior year’s taxes (with the exception of IRA contributions).

Act Now

With a couple of months still left in the year, here are a few strategies that may help you realize tax savings for 2015.

Charitable Giving

Give to qualified charitable organizations. Cash is always good, but contributing low-basis stock also takes the possible capital gains out of your portfolio, reducing overall tax.

Capital Gains Tax

Speak with your investment professional and have them net any capital losses against capital gains to reduce your capital gains tax bill. Most investment professionals have a tax budget that they work within, but a little planning can go a long way.

Municipal Bonds

If your portfolio calls for bonds, speak with your investment professional about using municipal bonds. In most states, all or at least part of your bond’s interest will be tax-free.

IRA Distributions

Donate your Requirement Minimum Distributions from your IRA up to $100,000 (if the law is extended in 2015) to a qualified charity. It could reduce the amount of social security that is taxable in the given tax year, reduce adjusted gross income (AGI) which can limit your itemized deductions, and may also keep you from paying the additional 3.8% tax on net investment income.

Think Ahead

Once your taxes are filed, don’t stop there! Here are a few things you should think about throughout the year to help reduce your overall tax liability, and preserve your peace of mind at tax time.

• Start deferring into your employer’s retirement plan, or if you’re already doing so, increate the percentage each year until you reach the maximum deferral amount ($18,000 for 2015 and $24,000 for those over 50 years of age).
• Contribute to an IRA each year if your employer does not have a retirement plan. For 2015 you may defer $5,500, or $6,500 if you are over 50 years of age.
• Fund a flexible Savings Account (FSA) through your employer for costs such as childcare and medical bills, or fund a Health Savings Account (HSA) if you have a high-deductible health plan. Funding of either is pre-tax and will reduce your tax liability. Be aware that only $500 in an FSA can roll forward to the following year. Any amount exceeding that is lost, so plan carefully.
• Defer your Required Minimum Distribution (RMD) in the first year to April 1 of the following year if you find the deferral would save you overall tax dollars. This is only an option in year one and only applies to RMDs from IRAs, Inherited IRAs, and Roth IRAs — RMDs from SIMPLES and SEPS do not qualify.Consult your tax professional early and discuss what tax planning strategies make sense for your particular situation. Remember — it’s never too late to adopt good habits that can ease tax-season stress while saving money!

Polly Reynolds is a Vice President of The Trust Company, and established the Columbia office in 2012. Polly graduated from the University of Southern Indiana with a bachelor’s degree in accounting, and is also a Certified Public Accountant and Certified Trust and Financial Advisor. She is very involved in the Columbia community, and prides herself on her close relationships with clients.