Sadly enough, another year is coming to an end, which means it's time to start thinking about those end of the year deductions before the clock strikes midnight on December 31.
Before you get lost in holiday parties and family time, we've put together a list of the top 4 categories of deductions that you still have time to maximize to lower your taxable income, or maximize your deductions, for 2015.
In a normal situation you are trying to find a million different ways to make more money, but in the case of end of the year planning, making more money simply means a larger tax bill come April 15th. If you work for a company, ask your boss if you could defer any end of the year bonuses to the beginning of the New Year, or any pay raises that you might expect towards into the New Year as well.
It's a bit of a cat and mouse game as it's always nice to have more money for end of the year fun, but if your goal is to minimize your income, it's worth postponing that income for a few weeks. Depending on the company you work for, this might may or may not be an option for you, but it never hurts to ask. Some companies prefer you defer income while others might not leave you any options.
If you are self-employed, wait to send out those end of the year invoices until January 1st so you can ensure that you won't receive payment until the New Year. Any steps you can take to defer your 2015 income to 2016 will aid in lowering your taxable income.
Retirement funding is one area that can provide a substantial amount of leverage in lowering your tax bill provided you have the cash to add some additional funding to your plan before the end of the year. If you have a 401(k) plan through work, try upping your contribution percentage by a few points, or if you are expecting a large bonus maybe you think about contributing a much larger percentage for a few weeks and then drop back down after the New Year. If you are under 50, you can contribute up to $18,000 for 2015 in your 401(k), and the more you contribute, the lower your taxable wages become for the year.
If you are self-employed, you can boost your SEP IRA, Solo 401(k) or traditional IRA contributions. While the max you can contribute to a traditional IRA if you are under 50 is $5,500, you can contribute a larger percentage in a SEP IRA or Solo 401(k) depending on your income for the year. You would want to check in with your CPA to make sure you are on track to maximize this deduction and to pinpoint how much extra you might be able to contribute. More money in your retirement plans is never a bad option as the cost of retirement is skyrocketing.
If you itemize your deductions, the end of the year provides a great time to maximize those write-offs. If you have a business be thinking about any big purchases that you need to make like office equipment, computers, printing and marketing costs or any other deductible items that can be write-offs for your business. You can certainly score some end of the year deals on office supplies, so, all in all, it's a great time to be thinking about those items that will help you do your business better.
Charitable donations are another popular write-off deduction, and there are a few ways to maximize these deductions. One word of caution, no matter what level of charitable deduction you make, always make sure you have a receipt to prove your deduction should the IRS request it.
Of course, you can always donate household goods, clothes, and electronics, but you can also supercharge your deductions by donating items like cars, appreciated stock or property over cash donations. If you've held stock for over one year, you can donate the stock and not have to worry about capital gains issues. You'll also want to make sure that any charitable donations are going to a 501c(3) charity and not to your cousin Bob down the street.
One vastly overlooked end of the year deduction is the ability to prepay your January mortgage payment in December. Pre-paying your January mortgage payment allows you to get an added boost in your interest deductions for 2015.
If you currently are contributing to a 529 tuition plan for your children and live in a state that offers a state level tax deduction, you might want to contribute a little extra this year to maximize that deduction. Not all states offer tax deductions, so you'll want to make sure and read your plan documents and research if your state offers a deductible plan. Saving For College offers a great list of the top performing 529 plans for each quarter and loads of other information about 529 plans, including which states offer deductions for their plans.
Those underperforming assets in your stock accounts could become your new best friends at the end of the year. If you have a capital loss in any stock that outweighs the capital gains, you can use those losses and deduct up to $3,000 against the gains. If you have losses over $3,000, you can carry them forward into future tax years. It's like the gift that keeps on giving.
There are lots of creative ways to lower your taxable income towards the end of the year, but the most important step to take is making sure you maximize the few weeks' left to take advantage of the strategies that will make the most powerful impact with your finances. It's never a bad idea to check in with your financial planner and or CPA, especially if you own your own business, to make sure you're dotting your I's and crossing your T's when it comes to end of the year planning.
You'll be thanking yourself come April 15th that between drinking all the eggnog, eating all those decadent holiday cookies and unwrapping countless gifts that you took some time to check off a few items on the end of the year deduction checklist.
Photo: Christian Schnettelker