We’ve now fully shifted into the holiday season, with the year-end fast approaching. Yet there may still be time for you to trim your tax liability for 2014. Consider the following as potential year-end moves.
- Review investment holdings inside taxable accounts. If any have an unrealized loss in value from the original cost basis, consider selling those in order to lock in a realized capital loss. Realized capital losses can be used, dollar for dollar, as an offset against realized capital gains. Further, up to $3000 in any net realized capital loss can be offset against other taxable income in any given year, with any remaining unused capital loss balance available for carryforward to future years.
- Fund retirement accounts and health savings accounts fully, if eligible. Taking advantage of the maximum annual contribution limits may mean that you end up keeping more dollars in your own pockets, through the form of a lower tax liability. If you need to adjust remaining contributions for the year, call your plan administrator right away so that needed adjustments get in place.
- Consider converting a Traditional IRA to a ROTH IRA. Take advantage of the historically low tax rates at present by converting some or all of a Traditional IRA to the ROTH counterpart. Think of this strategy with an eye for managing your future tax liabilities. Yes, it’s easy to presume that you will be in a lower tax bracket in retirement. Yet that may not always be the case, especially when any pension income, social security benefits and required minimum distributions from retirement accounts are considered.
- Be mindful of some expired tax provisions, as of the date of this writing. A few popular expired provisions include:
- the itemized deduction for state and local sales taxes paid by residents of states which do not have a state or local income tax;
- the above-the-line deduction for qualified tuition and related expenses; and
- the above-the-line deduction for certain expenses paid by educators.
It is possible, although not certain, that Congress may adopt legislation in the future which will again restore some, or all, of the provisions.
- Bunch itemized deductions. Should you find that you fall just short of meeting needed thresholds in some years, consider scheduling the payment of certain items into a single year in order to meet needed levels for taking itemized deductions. Common examples include scheduling non-urgent medical expenses, re-filling prescriptions or paying 2 years of real estate property taxes in a single year.
- Be charitable. If your year-end projections show a larger tax bill than you had anticipated earlier in the year (and if none of the preceding suggestions benefit you), consider making a gift or donation to a qualified charitable organization. Yes, you must meet certain requirements. The best method for making such donations is making the gift by check or donating items in kind; be sure to obtain a written receipt to document your charitable gift. Also be sure to substantiate and document the value for any items donated in kind.
The above items are only a few examples of planning opportunities — though they are not intended as a comprehensive listing of all possibilities. Each item may not apply to every individual. Be sure that you discuss your specific situation with your financial or tax adviser to determine the best actual year-end moves applicable to your situation!