2015 Tax Planning for Individuals

We are again coming to the end of another year and once again dealing with uncertainty due to many tax extenders that expired at the end of 2014. Will Congress once again extend the extenders? Will it be retroactive back to the beginning of 2015? At this late juncture I would operate under the assumption that Congress will not get anything done by the end of this year.

 Operating under this assumption would have one looking at several general strategies that the individual tax filer may want to consider.

  • Look at your investment portfolio and dump any losers. Capital losses you incur can offset your capital gains plus up to $3,000 of other income. Excess losses, if incurred, can be carried forward.
  • Do not forget about the 3.8% surtax on net investment income. Taxable interest, dividends, gains, rents, annuities, royalties, passive income. Certain taxpayers, single filers with modified AGIs over $200,000 and couples over $250,000 could be subject to this tax.
  • Consider donating appreciated stock to charity. You can deduct the full value and avoid paying the tax on the appreciation.
  • Prepay deductible expenses such as charitable contributions and medical expenses this year using a credit card. You can deduct the expense based upon the year that the charge goes on your credit card, not when the credit card gets paid.
  • If you’re self-employed you may want to consider paying all bills related to your business by December 31st.
  • If you are usually not subject to the Alternative Minimum Tax, you may want to consider paying your 4th quarter state estimated payment, usually due January 15th, by December 31st and also consider prepaying some 2016 real estate taxes by the end of 2015. Again, watch out for the Alt Min tax as that would take away any benefit of such acceleration of payments.
  • Try to lump threshold expenses such as medical and dental expenses. If you are scheduled for dental work early in 2016 you may want to pay for that by the end of 2015.
  • Make sure that you maximize your retirement plan contributions for 2015. If you have a 401(k) plan make sure that you have contributed the maximum amount of $18,000 for 2015. If you are age 50 or more, you can also make an additional contribution of $6,000.
  • If you are employed or self-employed without a retirement plan, you can make a deductible contribution of $5,000 a year to a traditional IRA. There is also a catch-up contribution of $1,000 if age 50 or over here as well.
  • If you own your own business consider setting 401(k), SEP or SIMPLE Pension plan. Deferral of income is one of the only tools left to taxpayers to stave off taxes. It also allows one to grow their investments without current taxation of both income and net investment income.

If you have questions or need further information on any of our suggestions, let us know.

 

Have a Happy Thanksgiving and Holiday Season!

- Joe Moriarty, CPA, Managing Partner