5 Tax Moves To Make Right Now

September 15, 2017

As we approach the end of summer and the beginning of fall, things are changing. Temperatures begin to cool, leaves start to turn color, and the kids start back at school. While we do not have much control over these changes, we do have the ability to make some changes to improve our financial well-being.

With about three quarters of the year in the books, now is a great time for tax planning. You should have a good idea of what your income (including bonuses) projects to be for the year, plus there is enough time to make some changes before the end of the year. Here are some ideas:

  1. Increase 401(k) Contributions. If your income projections show that you are on pace to creep into a higher tax bracket, consider decreasing your taxable income by increasing pretax contributions to your 401(k) plan. Most plans allow you to change your contribution amount at any time, as long as you stay within the IRS limits of $18,000/year, plus $6,000 more if you are 50 or older. Then, when the new year arrives, why not keep your 401(k) contribution rate at this higher level if it fits within your budget?
  2. Increase Health Saving Account (HSA) Contributions. Similar to 401(k) pretax contributions, HSA contributions can be used to keep you in a lower tax bracket, and can be changed at anytime through your payroll deduction. You can even write a check and have it deposited into your HSA up to April 15th of the following year. Since the unused balance in your HSA can be rolled over to subsequent years, and can be invested, view it as a supplemental retirement account as all qualified medical distributions will be tax free, regardless of your age.
  3. Use all the money in your Flexible Spending Account (FSA). Unlike the HSA, your FSA has a use it or lose it provision. So, look at your current balance and future contributions for the year, and match current year medical expense to at least meet this amount. If it looks like you’ll have unused funds, reschedule that minor procedure or visit to the doctor you were planning for this year instead of next so you can use the tax-free money (assuming, of course, rescheduling does not negatively affect your health). Load up on contact lenses or upgrade your glasses this year, rather than waiting until next year. For more ideas on eligible ways to spend extra money, check out this list for ideas.
  4. Offset capital gains with capital losses. If you sold some stock or other asset earlier this year that generated a capital gain, you can offset this gain with a capital loss. By using capital losses to offset capital gains you will lower your net investment income and tax liability. You can even use up to $3,000 of a net capital loss as a taxable income deduction.
  5. Hire a tax preparer. Don’t wait until you’re facing the April 15th deadline to figure out who you’re going to have prepare your taxes for the year. Interviewing and hiring during the fall gives you time to acquaint yourself with your preparer, which makes it more likely that he/she will be able to give you personalized tax planning ideas to actually help you save on your taxes. Waiting until mid-March or later not only limits this opportunity, but may also cost you a premium — some preparers charge more for people who submit their stuff after a certain date.

Asses your overall tax situation now, and put a plan in place to avoid “scramble mode” at the end of the year.

 

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Two Ways To Make Next April 15 Less Taxing

April 15, 2016

In the early days of my career as a financial advisor, there were some “interesting” investments that my clients owned. There were a lot of oil and gas partnerships that were very mediocre investments if viewed solely as an investment vehicle, but they offered spectacular tax advantages that made them wildly popular. People wanted to buy them solely for the tax benefits. And then…tax laws changed and these investments tanked! Clients couldn’t get out of them because no one else wanted them.

Similarly, I have had many conversations lately with people who are looking for magic strategies to reduce or eliminate their tax burdens from 2015. (It must be close to April 15th.) Newsflash – there is very little you can do in April 2016 to impact your 2015 tax return. When it comes to tax planning, the key is to start early in 2016 (I’d suggest NOW if you haven’t already) to impact the tax return you’ll file on April 15th 2017. A couple of my favorite ways to reduce income tax burdens are available right through your employer in many cases:

Health Savings Account (HSA): This is my #1 favorite right now. The contribution limit for single in ’16 is $3,350 and for a family it’s $6,750. Contributions are either pre-tax (through your employer) or tax deductible (if you write a check) and if used for medical expenses, they are tax-free on the way out too.

Are you kidding me??? The IRS allows a vehicle to be tax-free in AND tax-free out? That’s remarkable. You can build a substantial bucket of money in the future, and the IRS can help subsidize it. I can’t think of another vehicle where you’re allowed to “double dip” with tax benefits in and out.

401(k): Another great way to minimize next year’s taxes is to get as close as you can to the IRS maximum on your 401(k) contribution. This year, it’s $18,000 ($24,000 if over 50 years of age). If you’re in the 25% tax bracket, getting to the $18,000 mark would save you $4,500 in current year taxation. Rather than just stop at 3% or 6%, whatever the employer matching contribution is…..work toward getting the max contribution. If you can’t do it this year, you can increase your contribution by 1-2% per year until you’re there.

I hear and read a lot of “experts” talking about stopping at the level of employer matching contributions and then opening an IRA or Roth IRA outside of the employer account. I’m not opposed to that, but not everyone is disciplined enough to make that work.  But if you get up to the maximum contribution and then do the IRA or Roth IRA, you’re going to be saving an enormous amount of money and getting closer to your retirement goals with each passing paycheck. For perspective – I’ve never met someone who was within months of retiring complain that they had too much money saved for retirement!

These are two quick and easy things that you can do to make next April 15th much more manageable and reduce your overall tax burden. These are the obvious ones, and a future blog post will touch on some of the not so obvious ones. Until then, get busy contributing to your HSA and 401(k)!

The Easiest Way to Save On Your Taxes

January 20, 2016

I think one of the reasons these mid-January and February days are so dreary is that it’s also tax time. Your mailbox and even your email inbox these days are being graced with tax forms, reminding you that preparing your income taxes is looming over your head. One of the reasons I dread tax time is because I can no longer procrastinate getting my records organized, and in doing so, it inevitably adds a bunch more to-do’s to my list of things I’d rather not be doing in my free time. Continue reading “The Easiest Way to Save On Your Taxes”

Stop Going Through the Motions of Filing a Tax Return

March 30, 2015

Spring is a busy time of year here at Financial Finesse. While we are always busy providing financial guidance with passion and objectivity, the tax season and the April 15th deadline provide an extra sense of urgency for many callers reaching out to us on the Financial Helpline. Many of the income tax specific calls we receive can be characterized as information seeking and tend to be reactive discussions. When you think about the tax filing burdens created by a complicated tax code, the IRS can strike fear into hard working taxpayers to try and get things right. Continue reading “Stop Going Through the Motions of Filing a Tax Return”

5 Tips to Make Tax Time Less Taxing

January 12, 2015

If Christmas is the most wonderful time of year, why does it always have to be followed by its stressy and messy cousin “Tax Time.” Remember that New Year’s resolution to get your financial life in order? Well, it’s not too soon to start organizing the files, papers and “stuff” needed to do your taxes.   Continue reading “5 Tips to Make Tax Time Less Taxing”

10 End-of-Year Tax Tips

December 03, 2014

Are you worried about paying too much in taxes this year? If you wait until you file next year, it will be too late to do much about it. As the 2014 year winds down, you’ll want to note some simple things you can do to reduce the amount of income tax you owe Uncle Sam this year, while planning for the year to come.  Continue reading “10 End-of-Year Tax Tips”

How to Take Action If You Cannot Pay Your Taxes

April 21, 2014

The tax filing season has come and gone for everyone that didn’t already file an extension. Even if you filed an extension, you still have the obligation to pay your taxes by the filing deadline of April 15. If you were unable to pay off your tax bill in full then IRS tax debt concerns may linger longer than necessary and at a significant cost. Continue reading “How to Take Action If You Cannot Pay Your Taxes”

The Deadline to Reduce Your Tax Bill is Approaching

March 24, 2014

Time is running out to stay off of Uncle Sam’s naughty list and complete those income tax returns prior to the April 15th deadline. (Even if you choose to file an extension until October 15, 2014 taxes are still due by April 15 to avoid paying interest and penalties.) Beyond making sure you aren’t missing out on any itemized deductions or tax credits, there are still some moves you can make to reduce your tax bill or increase your refund. Last minute contributions to deductible IRAs and HSAs are two effective strategies to lower your 2013 tax bill (or increase your refund). Continue reading “The Deadline to Reduce Your Tax Bill is Approaching”

“Rules of Thumb” Can Make Financial Planning Simpler

November 13, 2013

One of the many hats I wear around the Financial Finesse office is that of a fact checker.  Before we publish an article or release new content, I am frequently asked to verify any factual information it may contain.  In some instances, the information I am asked to verify is absolute. For example, the IRS has recently released 401(k) and IRA contribution limits for 2014: $17,500 (or $23,000 if age 50+) and $5,500 (or $6,500 if age 50+), respectively. At other times, the information we include in our publications is based on generally accepted financial planning principles—what we typically refer to as “rules of thumb.” Continue reading ““Rules of Thumb” Can Make Financial Planning Simpler”

Tax Planning for 2013 Begins Now

April 24, 2013

Just because tax season is over doesn’t mean your tax planning is done.  Whether you owed the IRS money or got money back, tax planning is something you can do all year.  Consider these tax tips: Continue reading “Tax Planning for 2013 Begins Now”

Tips for Tax Day

March 27, 2013

The days are getting longer, but your fuse may be getting dangerously short if you are among the 25% of Americans who wait till the last two weeks to file your tax returns. Good old procrastination is probably responsible for many last-minute returns, but there are other reasons, too.  Some people believe that the chances of an audit go down if your 1040 rolls in with the tidal wave of returns submitted on April 15, overwhelming the IRS.  Others are still trying to get a hold of numbers and documents, not even sure what documents they need and what policies apply to them when it comes to reducing their tax burdens. So for those folks still spending their weekends indoors, despite the growing rumor that spring has arrived, here are some last-minute tips to save time and face when it comes to taxes. Continue reading “Tips for Tax Day”

How to Get Tax Relief for College Expenses

May 30, 2012

We’ve been talking for the last few months about the challenges of sending a child to college. First comes the choice of savings vehicles from the hundreds of options: state-sponsored 529s, private plans, Coverdell accounts, and self-managed investments. Then comes the crash course in financial aid, where parents and students have to figure out their eligibility for grants, scholarships, and government and private loans.   Continue reading “How to Get Tax Relief for College Expenses”

3 Smart (and Not So Smart) Tax Decisions by Retirees

November 04, 2011

In my blog last week, I talked about how looking at the future of tax policy may be an interesting hobby (especially if you’re a geek like me!), but that it really isn’t all that useful in the present.  But, there are things that are important to look at when it comes to today’s income tax situation.  I don’t want to minimize the impact of paying attention to taxes; it’s just a matter of learning which situations are high impact situations. Continue reading “3 Smart (and Not So Smart) Tax Decisions by Retirees”