As the end of 2015 approaches, many individuals are focused on holiday parties, putting up decorations, gift lists, and entertaining. Taxes may not be the first thing on your mind, but maybe it should be near the top of your to-do list.
Now is the time to take last-minute steps to save money.
1. Make charitable contributions and donations before the end of the year.Generally, for individuals, contributions to tax-exempt charitable organizations are limited to 50 percent of the taxpayer’s adjusted gross income (AGI) for the tax year.
Those unused items cluttering closets can be donated to a qualified charity or nonprofit organization and deducted as charitable contributions. Document donations by saving receipts, canceled checks, and any letters or correspondence from the charity.
2. Make your January mortgage payment in December. A payment posted in 2015 means more deductible mortgage interest for tax year 2015. If you make this payment in December, identify it as the January payment. As long as it’s paid this year, it counts.
3. Add to retirement accounts any time before April 18, 2016. Yes, you read that correctly. You have a few more days to file your taxes this year because of Emancipation Day, observed in Washington, D.C.
Consider maximizing 401(k) contributions before year’s end. The deductible amount for a contribution to a traditional IRA (if you qualify to take the deduction) is up to $5,500 per person, and up to $6,500 per person if age 50 or older.
Workers over 50 can make additional contributions to their Simple IRAs of up to $3,000. In 2015, a married couple filing jointly, whose modified adjusted gross income is more than $98,000 but less than $118,000, can take a partial deduction for a traditional IRA, and so can single taxpayers (including head of household filers) making more than $61,000 but less than $71,000.
Those of you who are self-employed can set up an employee pension plan and contribute the lesser amount of up to 25 percent of your income or $53,000 before April 18, 2016.
4. Check the amount of your medical deductions for 2015. Taxpayers should check to see if they have enough medical deductions to itemize (more than 10 percent of AGI, unless 65 or older, which remains 7.5 percent).
It’s not too late to schedule additional dentist or eye doctor appointments before the end of the year. Hearing aids, eyeglasses, contact lenses, hospital fees for nursing, most dental expenses, physical therapy, lab tests, and X-rays are all deductible.
Even some capital improvements with medical purposes can be claimed as medical expenses, such as constructing an entrance ramp. Don’t overlook medical mileage to and from the doctors, hospitals, and pharmacy. Just make sure to keep your mileage recorded.
5. If you’re self-employed, buy supplies now. Self-employed taxpayers who use the cash method of accounting can pay bills on or before December 31, 2015, and claim the expense on their return. Consider stocking up on necessary supplies and equipment.
6. Sell “loser” stocks. With the stock market experiencing ups and downs this year, taxpayers still have time to sell stocks or mutual funds and take the losses to offset their income. You can take losses of up to $3000 exceeding your gain. If you have more than $3,000, you can carry the difference forward to offset gains in a future year. Talk to your tax or financial adviser on whether it makes sense to do this, given your long-term goals.
7. Victims in designated disaster areas can maximize their casualty loss deduction. Taxpayers who live in a declared disaster area may want to resolve any damage or insurance claims from this year to maximize their casualty loss deduction. This deduction would be the amount that exceeds 10 percent of your AGI.
Yes, the holidays are all about celebrating friends and family. Taking a few moments to plan for last-minute tax savings can help you enjoy the journey even more: with extra cash in your pocket.