Five End of Year Tax Planning Strategies

The holidays are suddenly upon us and we are just days away from the close of another year. But although 2015 is almost in the history books, there are still some ways you can reduce your tax liability and improve your overall financial picture heading into the New Year. Here are five tax planning strategies to implement before the end of the year: Tax Planning

Maximize your Retirement Account Contributions: If you have a traditional IRA or 401K plan, your contributions are tax-deferred. This means every dollar you contribute to such a plan is a dollar reduced from your taxable income for 2015. This money can be invested and multiplied in your account, and you will not have to pay taxes on it until it is withdrawn (either early or during retirement). If you have a 401K plan at work, hopefully you are already contributing at least the maximum amount that is matched by your employer. If you have a traditional IRA, you are allowed to contribute a total of $5,500 plus an additional $1,000 “catch-up” contribution if you are age 50 or above.

Maximize your HSA Contributions: Health savings accounts (HSAs) are also tax-deferred accounts in which you can save money, reduce taxable income and spend money out of the account on eligible health-related costs tax-free. The maximum HSA contribution limits in 2015 are $3350 for singles and $6650 for families. There is also a $1,000 “catch up” contribution allowance for individuals age 55 and above.

Use (or lose) Your FSA Account Dollars: Consumers often confuse HSAs and flexible spending accounts (FSAs). FSAs are health-related savings accounts in which the balance must be used within a certain period of time. Previously, FSA account holders had until the end of the calendar year to use the money in the account, but new rules now allow employers to either carry over $500 or extend the time period by two and a half months. If you have an FSA, review the details to ensure you will be use all the money in the account before the deadline.

Review your Health Insurance Coverage: Health insurance has changed dramatically since the implementation of the Affordable Care Act. You now have the option of purchasing a health care plan from a state or federal exchange rather than privately or through your employer. Depending on your income, you may qualify for a full or partial tax subsidy to help pay for a plan purchased from the exchange. Open enrollment for 2016 goes from November 1, 2015 through January 31, 2016. Now is the time to shop around on the exchange to see what health insurance plans are available in your area.

Maximize Charitable Donations: In most cases, the IRS allows taxpayers to give up to 50% of their adjusted gross income (AGI) to qualified charities. This can be in the form of cash, clothing, household items or even cars. Speak with your tax accountant about your tax situation as you approach the New Year. Additional charitable gifts may be an effective strategy to place you in a lower tax bracket and significantly reduce your tax liability.

Scroll to Top