I know that you are still recovering from a great holiday season and the last thing you probably want to think about now is taxes. However, they are not going to go away no matter how hard you try so you might as well do the next best thing and make them as low as possible!
1. Make the most of retirement account contributions. As you’re making your last-minute contributions to your IRAs and self-employed retirement accounts for 2014, try to get a handle on what you’ll be contributing for 2015 as well. Maximizing contributions to your tax-advantaged retirement accounts is one of the best ways to save money on taxes and ensure you stay on track for retirement savings. Planning for and making contributions throughout the year also helps in two ways. You’ll avoid a last minute scramble to come up with the money, and your investments will have more time to grow and periodic investments also avoid potential investment risks.
The same early bird thinking goes for any 529 state college saving plan contributions you may be planning on making for your children.
2. Think about your bonus in tax terms. Many employers pay last year’s bonuses in February or March of the next year. If that’s the case for you, you’ll need to remember that payment will be part of your 2015 income. As the year progresses, you may find you’ll want to defer other income (e.g., capital gains from selling appreciated property) to help manage your tax bill. Or, you may find you can take more deductions during the year to help offset the bonus income. Either way, the important thing is to keep that extra income in mind throughout the year so you won’t be surprised by a larger than expected tax bill, says Ken Rubin, Partner at RubinBrown in St. Louis, Mo.
3. Keep an eye on Washington. Congress may extend certain tax provisions that expired in 2013 into 2014, including itemized deductions for state and local taxes, certain charitable donations and some education expenses. It remains to be seen whether these extensions, if passed, will remain in effect throughout the 2015 tax year. In addition, there is momentum in Congress toward an
overhaul in the tax code in 2015 and 2016.
No one can predict exactly when and how Congress might act, but you’ll want to keep an eye on these issues throughout the year and ask your tax professional about any changes that might affect you.
4. Make sure you avoid the Affordable Care Act penalty. The individual mandate requiring most individuals to carry health insurance or risk paying a penalty went into effect in 2014. If you don’t have insurance and don’t qualify for an exemption, you’ll pay a penalty as part of your tax return. Although the penalties are small for 2014, they will gradually increase over the years and may become more of a burden.
5. Take advantage of your tax-smart employee benefits. Make sure you’re not missing any tax benefits available through your employer-sponsored benefits. If you set aside too little for this year in either your health or dependent care flexible spending account (FSA), increase the amount for 2015. If you are enrolled in a high deductible plan, make a full contribution to your health savings account (HSA).
6. Watch out for the alternative minimum tax. Work with your tax expert and advisor to evaluate whether the alternative minimum tax (AMT) may impact your tax situation. Many tax benefits allowed for purposes of calculating regular taxes are modified or disallowed for AMT purposes. These include the deduction for state and local property taxes on your residence, state income taxes (or state sales tax if you elect this deduction option), miscellaneous itemized deductions and personal exemption deductions.
Adopted from Ameriprise Financial 12/4/14 Article