End of the Year Tax Saving Strategies and Tax Updates 01-22-2015

There were a lot of changes and expired tax breaks which got restored in late December. Consequently, there will be minimal changes in tax liability/refund for those who have similar income and expenses to the previous year. Some of the deadlines for saving on taxes have passed, but tax planning is not a one-time, one-year event. It should be considered an ongoing project, which could save on taxes in current and future years. Some information and links are provided for future tax planning, even though the deadline for last year has passed. As each case is different and information is general in nature, before you make any decision you should discuss the matter with a qualified tax professional.

Inflation Adjusted Deductions

There are multiple tax changes due to inflation; mainly tax brackets, personal exemptions, and standard deductions. In addition, there are increases in the Earn Income Tax Credit. These changes will not allow taxes to increase for those who received a raise due to inflation and would normally move to a higher tax bracket.

Emerytura

For those who still want to save money on taxes, putting money into a retirement account is the best way. The general deadline is April 15. For some accounts, the deadline was December 31 and this matter should be discussed with your employer or your broker, so taxes can be planned for last year as well as for this year. Retirement is one of the most important tax planning issues. Each one of us needs to estimate our own future needs and plan accordingly. The Social Security Admin provides a free estimate benefit calculator, which is a helpful tool in financial planning for retirement.

In addition to saving on taxes, you may qualify for an additional “Saver’s Credit”, which could give you additional money for your retirement account. More information can be found through this IRS link
. Both of those – deductions for retirement and credit for money put into a retirement account, could add up to a significant amount, which could lower your tax liability or increase your refund. In some cases it could be $1,000 + for individuals and $2,000+ for married couples. Each case is different and should be discussed with a tax professional to have complete information before making a final decision.

Health Saving and Education Plans

In addition to contributions to a retirement account, some employed and especially self-employed taxpayers should consider contributing to your Health Saving Account HSA or Educational accounts. Some states have additional tax breaks for 529 (educational) plans. The State of Illinois is one of them. More information can be found here.

Investment portfolio

It is too late to do anything for last year, but looking forward- review your portfolio and if you need to recognize some losses, sell your investments before the end of the year. Make another mortgage payment or make estimated state tax payments before the end of the year. More information on these tax moves as well as others are found in Kiplinger.

Charity

You need to have receipts for any “in kind donation” and for any donations over $250.00. More information on this matter can be found at this IRS link. Remember the charitable mileage rate, which is 14 cents per mile.

Medical

In the future, payoff outstanding medical bills and prepay medical procedures (down payment) to maximize on medical deductions. You need to have medical expenses of over 10% of your adjusted gross income (the rough total of your earnings) in order to be able to deduct them. Anything over 10% is deductible, combining them in one year is generally better than spreading them over two or more years. In addition, the medical mileage rate is currently 23.5 cents per mile.

Health Insurance Tax Credit

Those who didn’t have insurance last year may expect an additional “tax” on their tax return. It may range on average from a hundred to a couple hundred, or maybe even a thousand dollars. On the other hand, Kaiser’s Foundation calculator helps to estimate tax credit, which helps to offset the cost of insurance. Some taxpayers may expect additional refunds due to this credit and some may need to repay part of the money they have received.

Miscellaneous Deductions

Work-related expenses such as protective clothing, tools, education, books, laundry or anything job related which you need to pay by yourself, should be paid for before the end of the year (subject to limits) and, as always, deductions need to be supported by receipts. The same goes with union dues, professional subscriptions, home office, Educator expenses, or gambling losses.

As always, there is more to tax law than these topics and we invite you to stop by our office to discuss any matter related to these tax-planning issues. Happy tax savings.