Our Accounting Articles
7 Last Minute Tax-saving Tips
December 23, 2015
The year is quickly drawing to a close, but there’s still time to take steps to reduce your 2015 tax liability — you just must act by December 31:
- Pay your 2015 property tax bill that’s due in early 2016.
- Make your January 1 mortgage payment.
- Incur deductible medical expenses (if your deductible medical expenses for the year already exceed the applicable floor).
- Pay tuition for academic periods that will begin in January, February or March of 2016 (if it will make you eligible for a tax credit).
- Donate to your favorite charities.
- Sell investments at a loss to offset capital gains you’ve recognized this year.
- Ask your employer if your bonus can be deferred until January.
Keep in mind, however, that in certain situations these strategies might not make sense. For example, if you’ll be subject to the alternative minimum tax this year or be in a higher tax bracket next year, taking some of these steps could have undesirable results.
If you’re unsure whether these steps are right for you, consult us before taking action.
© 2015 Thomson Reuters/Tax & Accounting
Want to Avoid a 50% Penalty? Taken Your RMD by Dec. 31st
December 15, 2015
After you reach age 70½, you must take annual required minimum distributions (RMDs) from your IRAs (except Roth IRAs) and, generally, from your defined contribution plans (such as 401(k) plans). You also could be required to take RMDs if you inherited a retirement plan (including Roth IRAs).
If you don’t comply — which usually requires taking the RMD by December 31 — you can owe a penalty equal to 50% of the amount you should have withdrawn but didn’t.
So, should you withdraw more than the RMD? Taking only RMDs generally is advantageous because of tax-deferred compounding. But a larger distribution in a year your tax bracket is low may save tax.
Be sure, however, to consider the lost future tax-deferred growth and, if applicable, whether the distribution could: 1) cause Social Security payments to become taxable, 2) increase income-based Medicare premiums and prescription drug charges, or 3) affect other tax breaks with income-based limits.
Also keep in mind that, while retirement plan distributions aren’t subject to the additional 0.9% Medicare tax or 3.8% net investment income tax (NIIT), they are included in your modified adjusted gross income (MAGI). That means they could trigger or increase the NIIT, because the thresholds for that tax are based on MAGI.
For more information on RMDs or tax-savings strategies for your retirement plan distributions, please contact us.
© 2015 Thomson Reuters/Tax & Accounting
Don’t Miss Your Opportunity to Make 2015 Annual Exclusion Gifts
December 8, 2015
Recently, the IRS released the 2016 annually adjusted amount for the unified gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption: $5.45 million (up from $5.43 million in 2015). But even with the rising exemptions, annual exclusion gifts offer a valuable tax-saving opportunity.
The 2015 gift tax annual exclusion allows you to give up to $14,000 per recipient tax-free — without using up any of your gift and estate or GST tax exemption. (The exclusion remains the same for 2016.)
The gifted assets are removed from your taxable estate, which can be especially advantageous if you expect them to appreciate. That’s because the future appreciation can avoid gift and estate taxes.
But you need to use your 2015 exclusion by December 31. The exclusion doesn’t carry over from year to year. For example, if you and your spouse don’t make annual exclusion gifts to your grandson this year, you can’t add $28,000 to your 2016 exclusions to make a $56,000 tax-free gift to him next year. read more…
PTO Contribution Arrangements Can Help Prevent the Year-end Vacation-time Scramble
December 1, 2015
From the Thanksgiving kick-off of the holiday season through December 31, many businesses find themselves short-staffed as employees take time off to spend with family and friends. But if you limit how many vacation days employees can roll over to the new year, you might find your workplace to be nearly a ghost town as employees scramble to use their time off rather than lose it. read more…
Year End Strategies to Reduce Taxes on Investments
November 24, 2015
While tax consequences should never drive investment decisions, it’s critical that they be considered — especially by higher-income taxpayers, who may be facing the 39.6% short-term capital gains rate, the 20% long-term capital gains rate and the 3.8% net investment income tax (NIIT).
Holding on to an investment until you’ve owned it more than one year so the gains qualify for long-term treatment may help substantially cut tax on any gain. Here are some other tax-saving strategies: read more…
Protect Your Deduction: Verify that a Charity is Eligible to Receive Tax-deductible Contributions Before you Donate
November 17, 2015
Donations to qualified charities are generally fully deductible, and they may be the easiest deductible expense to time to your tax advantage. After all, you control exactly when and how much you give. But before you donate, it’s critical to make sure the charity you’re considering is indeed a qualified charity — that it’s eligible to receive tax-deductible contributions. read more…