Six Year-round Tips to Lower your Taxes

By Bill Harvey, CPA

July 15, 2016

Waiting until tax time to try to lower your taxes is usually not the most effective way to accomplish your objective.  Between now and the end of the year, try some of these ideas and you just might save yourself a few (thousand) dollars at tax time.

1.    Organize – set up a system now that will enable you to find all your tax records easily at year end.  Maybe it’s a set of folders in your top desk drawer where you can easily save information regarding income and deductions.  For example, keeping receipts for medical expenses and charitable donations made throughout the year will keep you from having to remember all of them and searching for the documents at tax time.
2.    Project - Prepare a mid-year projection of taxable income to see what your estimated tax damages might be.  Maybe you have the flexibility to move income and/or deductions from one year to another to keep you in a lower bracket.  You may also want to ask your tax preparer to assist with this project.  Most have excellent software tools to make this simple and painless.
3.    Fund Retirement - Be sure to fully fund your retirement accounts to shelter as much income as possible from tax and get the greatest employer match.  This seems like an obvious strategy, but many people are not fully funding their retirement accounts, and they don’t realize it.  Congress increases the maximums from time to time, and most retirement plan ceilings increase each year due to inflation.  Sometimes we don’t realize we’re allowed do more!
4.    Plan stock sales – Long-term capital gains for taxpayers in the 15% and lower brackets incur tax at a capital gains rate of ZERO percent—that’s right ZERO.  The 15% bracket tops out at $75,300 of taxable income for married taxpayers in 2016 (which could amount to significantly more in gross income).  So, when you’re looking at your projection in Step #2 above, and you have investments which might yield significant long-term capital gains, you may want to see if you can manage your other income items to keep you in the 15% bracket.  Maybe you can delay taking retirement distributions, etc.
5.    Plan stock sales #2 – In addition to Step #4 above, review your investments with your advisor to see if there are any losses that may need to be harvested to offset gains.  Capital losses available to offset ordinary income are limited to $3,000 per year.  A fairly paltry amount.  However, you can use losses to offset capital gains dollar-for-dollar with no limit.
6.    Get married (or don’t) –Your marital status on December 31 of each year is considered your status for the entire year.  So, if you get married at the end of the year, you are married for the entire year according to tax law.  Marital status can have a profound effect on your total tax bill – maybe good – maybe not so good.  A few years ago my brother-in-law informed me that he and his bride-to-be were going to get married on New Year’s Eve.  I advised him that he ought to examine the tax effects of the timing of this blessed event.  Turns out, if he waited until New Year’s Day, he and his bride would save over a thousand dollars in federal and state taxes.  He followed my advice, and, since I effectively gave the couple a gift in excess of $1,000, I didn’t feel the need to check out their gift registry at Target!

There are many more strategies that you may want to consider before the end of the year rolls around.  If you’d like to know more, give one of our CPA’s a call at 419-289-7007.  We’d be glad to help!

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