Some Quick and Easy Year-End Tax Strategies

By: Jeffrey M. Fetter

As difficult as it is to believe, we are coming up on another year end.  Now is the time when we start thinking about taxes and wonder if there is anything that should be done before the end of the year to save on the amount due.  In most cases, we think about those things, but may end up doing nothing because it may be too late to get it done; it takes too much time, too much paperwork, etc.  Well, here are a few year-end items that don’t take a lot of time and can be easily accomplished:

  1. Make Additional HSA Contributions.  If you are eligible for a Health Savings Account at any time during 2015, the tax law says you are treated as having been eligible for the entire year.  What does this mean?   It means that you can make an entire year’s deduction even though you may not have been participating for the entire year.  If you are an individual participant, you can contribute up to $3,300 for the year and if a family participant, the contribution amount increases to $6,550.  Because age has its benefits, if you are over 55, you get an additional contribution allowance of $1,000.  And, best yet for those procrastinators, you can make the contribution any time before you file your 2015 income tax return.
  2. Make Annual Gifts for 2015.  Anyone can make a gift to a person, or as many persons as they wish, of up to $14,000 without incurring a gift tax and without having to file a gift tax return (subject to a few limitations).  A married couple can give a child $28,000 taking advantage of both parents’ gifting limits.  With a gift, no one pays any taxes – gift or income taxes.  Now, what if you make a gift in excess of $14,000 to an individual?  Do you go to jail?  Pay penalties?  Neither.  You can certainly make a gift of over $14,000 to anyone you wish, but now you must file a gift tax return and advise the IRS of your gift.  No one pays taxes, but the IRS will take the amount of your gift, subtract the $14,000 that you could have gifted without a gift tax return, and the balance is then subtracted from your lifetime combined estate and gift tax exemptions – which this year is $5,430,000.  For example, if you give your daughter $114,000 in 2015, the IRS will disregard the $14,000 and chip away at your lifetime exemption, leaving you with $5,330,000 in exemption for future gifting or to be used in the event of your death.  With many taxpayers, there is little likelihood of having an estate in excess of the lifetime exemptions so gift away!  But, if you are gifting by check, give it to the recipient and have him or her deposit it on or before December 31, 2015.  It will raise fewer questions.
  3. Make Charitable Contributions or Pay Deductible Medical Bills.  If you have deductible contributions or payments, make them prior to December 31st.  Charitable contributions and medical expenses are deductible when paid or charged to your credit card accounts, not when you pay your bill. So, if you want to decrease your tax liability in 2015, but do not want to pay for it until 2016, you can use your credit cards as a tool for doing so.  If you believe you will be in a higher bracket next year, you may want to consider waiting until 2016.  But, in many cases, it is better to get it while you can.
  4. Withhold Sufficient Taxes.  Watch out for penalties for failing to withhold sufficient taxes from your paycheck.  It’s a good idea to do a trial tax return calculation to determine if you have withheld enough for purposes of paying your 2015 taxes for earned income (i.e., your paycheck).
  5. Take Required Minimum Distributions.  If you are required to take required minimum distributions from your retirement plans or IRAs, make sure you take them.  If you fail to take a required distribution, a penalty of up to 50% of the amount that should have been distributed can be assessed.  If you turn 70 ½ in 2015, you can generally delay the first required withdrawal until 2016. The rule is the year after the year in which you turn 70 ½.  But, be careful with that planning as well as it may require you to double up your withdrawal amount in 2016.

There are, of course, other tax-saving strategies that can be taken prior to the end of the year.  If your trial tax return shows unexpected or unplanned tax liabilities, contact your accountant or tax preparer immediately and start out the New Year on a good note.  Happy New Year!