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Ten Year-End Tax Planning Tips for Individuals

December 03, 2015 By Shane Roberts

Ten Year-End Tax Planning Tips For IndividualsEvery November and December I meet with clients to engage in tax planning to minimize the cut Uncle Sam takes. I have decided to list 10 great planning tips to help others save taxes. Make sure you always consult your tax professional before implementing these tips.

  1. STATE INCOME TAX:

    Prepay state income tax. If you are expected to owe in April, it may be good to pay state income tax before year-end to realize a federal income tax deduction. Individual taxpayers use the cash method of accounting when computing taxes so you must pay the tax before year-end to realize the deduction. (Watch out for AMT! State tax is an AMT preference item. Prepaying state tax may cause you to pay more AMT tax).

  2. TRADITIONAL IRA:

    Contribute to a Traditional IRA or increase your contribution to employer sponsored retirement plans. These contributions are often tax deferred and create a current year deduction. You may be limited to the amount you can deduct based on your situation so make sure you consult with your tax professional.

  3. CHARITABLE CONTRIBUTION:

    Instead of making your charitable donations in cash, consider making them with appreciated stock or mutual funds. You can deduct the full value of the security donated without having to realize a tax gain for the unrealized gain of the security. Make sure you have held the investments more than a year.

  4. MORTGAGE INTEREST:

    Convert loans in which you pay interest that are not currently deductible into a home equity loan. You may experience a lower rate and in most cases you can deduct the interest.

  5. CAPITAL GAIN:

    Consider investing in stocks or mutual funds that pay in dividends as opposed to CDs that pay interest. Divided paid from qualified domestic corporations are tax preferred and are treated just like capital gains. Capital gains have a maximum rate of 20% under current laws.

  6. ITEMIZED DEDUCTIONS:

    If your itemized deductions are close to the standard deduction every year, consider lumping your itemized deductions in one tax year, then use the standard deduction the other year. With this tool you’re doubling up on itemized deductions or paying two years of deductions in one year. For example, if you contribute to charities every year consider saving the contributions throughout the year and making the contribution to the charity in January then making your regular contributions through the year.

  7. INTANGIBLE DRILLING COSTS:

    Consider investing in an oil or natural gas investment. There is a loop-hole in the law that allows an investor to deduct a large portion of their investment as intangible drilling costs. For example if $10,000 is invested you may be able to deduct $8,500 of the amount invested in the year the investment is made (the percentage varies depending on the investment). If your tax rate is 25% you would save $2,125 ($8,500*.25 = $2,125).

  8. CAPITAL LOSS:

    Sell investments that have an unrealized loss. By selling the investment and realizing the loss you can deduct a capital loss. If you have other capital gain income or qualified dividend income you can offset that income with the loss. If you don’t have capital gain income you can offset up to $3,000 of a capital loss against other income. The remaining loss carries forward. The capital loss only expires if you do. Remember the wash sale rule (you cannot purchase the same investment 30 days before the sale or 30 days after the sale).

  9. REAL ESTATE:

    Consider purchasing real estate. Residential or commercial real estate investments usually realize tax losses for the first 7 to 10 years. Be careful if your income is over $125K because the loss may be limited.

  10. BUSINESS:

    Invest in a business. Investing in certain types of businesses require investment in machinery or equipment. These type of capital intensive businesses provide great write offs through depreciation. Generating tax losses can offset other ordinary, investment, and capital gain income.

Shane Roberts

Shane Roberts

Since his dream of playing in the NBA didn’t quite pan out, Shane went with his second career choice and became a CPA. After spending two years working in industry for public and private companies he made the move to Cook Martin Poulson and public accounting, and has loved every minute of it.

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