Monday, December 29, 2014

Merry Tax Planning!




The holiday season is here, and the new year is quickly approaching. Everyone knows what that means: it’s tax planning time!

While most people don’t start thinking about their taxes until February or even April, the best time to make changes is this year. If you haven’t thought about your taxes since you paid them in the spring, you’re still in good shape. Let’s look at four areas of tax planning you should aim to tackle as quickly as you can.

1.) Make any necessary changes to your retirement accounts

If there’s anything that is further off than tax planning, it’s retirement planning. Still, one of the most compelling reasons for making contributions to your retirement is preferential tax treatment. For starters, you should be contributing the maximum to either a Roth or a Traditional IRA.

From there, it gets a little trickier. If your income dropped this year, say, because you or your spouse lost your job or had a significant reduction in hours, you might not get much benefit out of the tax deduction that is presented by a Traditional IRA. You can take this opportunity to switch a portion of your Traditional IRA to a Roth IRA. Essentially, you’re “paying” the tax on a portion of your IRA in a year when it won’t cost you as much, then switching it into a tax-free growth account.

You also need to make sure you’re contributing to your employer’s 401(k) program. Those contributions are also made pre-tax – so you can deduct your portion of the matching funds from your tax burden. If you haven’t been contributing, see if you can make “catch-up” contributions to take advantage of the preferential tax treatment.

Regardless of how you save, you could be rewarded for it. This year, the Saver’s Tax Credit, which offers a sliding scale of tax breaks based on your income and how much you save, has been expanded. Investing in an approved retirement vehicle like a 401(k) or IRA can let you deduct as much as 50% of your contribution from your tax bill. How much you can deduct depends on your income and filing status.

2.) Spend your “use-it-or-lose-it” funds

Many employers offer plans like Flexible Spending Accounts (FSA). These programs also offer preferential tax treatment, but many of them empty out at plan year-end whether you’ve used the funds or not. These programs are a great way to save for unplanned medical problems, but if you were lucky enough to avoid those costs, you’ll need to spend that money before it goes away.


There are a few ways you can use to spend the money without wasting it. Obviously, if you’ve been putting off a minor medical procedure (mole removal, eye exam, new contacts), that’s the easiest way to spend. Otherwise, you may need to get creative. A few staple goods are FSA eligible. Over-the-counter painkillers, first aid kits and supplies, and some disaster preparedness supplies are sometimes eligible for reimbursement. Consider getting first aid kits as Christmas gifts for young children or donating them to community programs. Be sure to check with your employer to ensure that your purchases will be honored by your FSA.

3.) Plan your charitable contributions

If you’re going to donate to a charity, you can give in a way that maximizes your tax benefit. One of the easiest ways to do that is to give stock. Not-for-profit organizations don’t have to pay the capital gains tax, so they can sell it for the full amount. This means you get to take credit for the full value of the gift. This is also true if you plan to give real property (houses, buildings, land, etc.) or use another complex giving strategy to maximize the value of your contribution.

However you give, make sure you keep detailed records about your gifts. You’ll want both a receipt from the organization and another form of proof, like a copy of a check or a bank record.

4.) Investigate early tuition payment

You or your child may have a big tuition bill coming in a few months. If you wait to pay the bill until February or March when it is due, you may miss out on a chance to cash in on the American Opportunity credit. The plan replaces the Hope credit and allows for a $2,500 deduction and as much as a $1,000 credit for eligible expenses for four years of undergraduate study. If you are a student filing for the first time and don’t have much of an income, paying your Spring tuition now could result in a $1,000 check right around the time spring break rolls around.

Remember, no one can offer you accurate tax advice without a careful review of your finances. If you have questions about filing your taxes, you should speak to a tax planning professional.


Cetera Financial Services, Inc. is an independent, registered broker/dealer. Member FINRA/SIPC. Securities and insurance products offered by Cetera: Not FDIC/NCUSIF insured, may go down in value, not a deposit, not financial institution guaranteed, not insured by any federal government agency. Registered Address:  1495 E. Nine Mile Rd., Pensacola, FL 32514. Advisory services may only be offered by Investment Adviser Representatives in connection with an appropriate Cetera Investment Advisors, LLC Agreement and disclosure brochure as provided.

No comments:

Post a Comment