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6 Year-End Steps to Cut Your 2015 Taxes


Tax season doesn't officially start until the new year, but those who start planning now can take advantage of some money-saving tax strategies.

Start planning for your year-end tax moves now.

First, calculate your income, tax payments, and deductions to date, and estimate your totals for 2015. Then, you can figure out what steps to take in the next few weeks. You need this baseline information before making any moves.

Take deductions by Dec. 31. The most straightforward way to save is by reducing your taxable income. Deductions such as IRA contributions, health savings account contributions, charitable donations, and state and local tax payments all can reduce taxable income.

Lowering your income has many potential benefits. If you can lower your taxable income to below $74,900 for a married couple filing jointly or $37,450 for a single filer, you will pay 0% federal tax on sales of assets you’ve held longer than one year and 0% on dividends.

Even if you can’t get your taxable income quite so low, you may be able to lower it enough to step down to the next lowest capital gains tax rate.

Lowering your AGI can also lower deduction hurdles since they’re calculated in terms of percent of AGI. For example, unreimbursed medical expenses can only be deducted if they exceed 10% of AGI, and investment expenses must exceed 2% of AGI.

Sometimes, however, it’s better to push deductions to next year. If you expect to be in a higher tax bracket in 2016, deferring deductions can help you pay less tax in the long run. For instance, you may pay your estimated quarterly state income tax by Dec. 31 and deduct it on your 2015 return, or you can pay it next Jan. 1-15 and have a 2016 deduction.

If your bracket will go up next year, consider deferring certain deductions (such as state taxes and real estate taxes) so you can claim them on your 2016 return. The higher your bracket, the more the same deduction can save you.

Also, if an additional deduction would trigger alternative minimum tax (AMT), pay your fourth-quarter state income tax and/or real estate tax installment in January.

Contribute more to your 401(k) and/or IRA. Contributions to most types of retirement plans, including 401(k)s and IRAs, will reduce your AGI. If your per-paycheck contributions are not enough to hit the 401(k) contribution limit for the year, you can ask your employer to deduct a one-time lump sum to catch up. At a minimum, 401(k) plan participants should contribute enough to take full advantage of any company matching.

Sell some losers, especially if you’ve sold any winners. Tax-loss selling can minimize or eliminate capital gains on one asset by realizing a loss to offset it. There’s dollar-to-dollar offset. If for instance you’ve had $5,000 of capital gains, you can offset them completely with $5,000 of capital losses.

You can also carry tax losses forward indefinitely, so if you don’t end up needing to offset capital gains right away, you can use the excess loss to offset gains in a future year. Net capital losses (capital losses minus capital gains) can only be deducted up to a maximum of $3,000 in a given tax year. The amount exceeding $3,000 must be carried over.

Withhold more tax if needed. If you adjusted your tax withholding during the year in order to keep a cash buffer on hand, make sure you haven’t fallen short of meeting your obligations for the year. If necessary, adjust your December withholding, which may help eliminate the prospect of estimated tax penalties and interest. You can adjust your withholding by submitting a new W-4 form to your employer.

Give securities away. Consider giving highly appreciated stocks or mutual funds you’ve owned for more than one year directly to a charity. You benefit three ways. First, you’re doing good. Second, you won’t pay the capital gains tax you’d owe if you sold the security instead. And third, you’ll get a deduction if you itemize.

You can deduct the full market value of the security, as long as you don’t exceed IRS guidelines, which are fairly liberal.

Rebecca Pavese is a CPA, financial planner and portfolio manager with Palisades Hudson Financial Group. She is based in the firm’s Atlanta office and is a contributor to Palisades Hudson’s recent book,

Looking Ahead: Life, Family, Wealth and Business After 55.

Palisades Hudson is a fee-only financial planning firm and investment manager based in Scarsdale, N.Y., with more than $1.2 billion under management. Branch offices are in Atlanta, Fort Lauderdale, FL, and Portland, OR.

Read Palisades Hudson’s daily column on personal finance, economics and other topics at http://palisadeshudson.com/current-commentary. Twitter: @palisadeshudson.

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