We are now in the last few weeks of 2015 so it is time to take a look at your income tax picture and see if you have accounted for all changes in the law that may affect your returns, as well as taking a proactive move to lower your taxes.
Here are a few things to consider:
1. Typically people will try to postpone income and accelerate deductions to lower taxes. Prepare a draft of your 2015 tax return, or have your accountant do so. Then consider whether your marginal income will be taxed at regular rates, alternative tax rates, or capital gains rates and at what rate in each category. That will help you decide what steps to take to change the outcome.
2. If you have not paid in enough taxes, consider making an estimated tax payment or increase your withholding from your last paychecks to cover the shortfall. This can also reduce any potential estimated tax penalty if you have not reached a safe harbor by not paying enough. Making your state tax payment this year may also give you a deduction for it on your federal tax return.
3. Watch for news of tax provisions that expired in 2014 being renewed for 2015 and maybe for 2016 as well. The tax extender bill, if enacted should occur this week before Congress goes home for the holidays.
4. Check if your taxable mutual funds are scheduled to pay large capital gain distributions before the end of the year and if you have them being reinvested in the same fund, taken in cash or being reinvested in another fund. You may wish to change those options before the distribution and its impact might affect your tax return if they are expected to be large.
5.If you have been taking a personal exemption for a child who graduated college this year and started working, you should see if you will be able to take the personal exemption for the child in 2015 or if the child will qualify for their own exemption. This will have an impact on both individual's tax liability. Also consider if the child will qualify as a resident of another state where they are now working. They might have to file two state returns this year so be ready for this.
6. Make sure you take required minimum distributions from your retirement plans to avoid a penalty for not doing so. You can always take more if you need the income or if you think you will be taxed in a lower bracket on that money this year compared to next. Consider making a contribution to a retirement plan if you are eligible to do so. Consider whether to make a Roth, or a deductible IRA, or a payment to a business retirement plan. Watch for deadlines on when to open a plan, or fund one.
7. The Affordable Care Act was new to individual taxpayers last year and some who did not have health insurance were subject to a shared responsibility payment. That payment will probably increase if you still don't have insurance. Also check to see if you qualify for exemptions from the payment.
8. The Internal Revenue recently increased the safe harbor for certain business expenses from $500 last year to $2,500 this year. Last year the regulations regarding repairs and maintenance were rewritten and required major changes for most businesses.Take a another look to see if you are in compliance with the new rules.
Now is the time to check on your proposed tax liabilities, not at April 15 when the returns are due. Hope the exercise will give you the piece of mind you need when the time comes to actually file your returns.