With the year coming to a close, now is a good time to consider a few last-minute tax moves. With just a little effort, you potentially can save thousands in taxes. And even though 2016 is just around the corner, there’s still plenty of time to get last minute tax moves completed.
Here are 12 tax moves to consider:
1. Give: While perhaps obvious, for those who itemize their deductions, consider any last minute charitable contributions. If you have appreciated stock or other securities, they can be a great way to give. By giving appreciated stock, you may be able to avoid capital gains tax and get a nice tax deduction. We use a donor-advised fund to accomplish these objectives.
2. Sell, Sell, Sell: If you have capital gains, it may be worth selling securities that you hold at a loss to offset some of the gains. Keep in mind that you can deduct up to $3,000 in losses over and above, offsetting any gains. But, you should also keep in mind the wash sale rule.
3. Get Smart: If you are saving for a child’s education, be sure to fund your 529 plan.
See also: Your Complete Guide to 529 Plans
4. Max Out: Make sure to max out any retirement accounts you have to take full advantage of the tax savings. You can check out contribution and deduction limits for 401(k) or IRA accounts to see where you stand.
See also: Best Places to Open an IRA
5. Buy: If you are a small business owner, consider making necessary purchases in 2015 for the tax deduction. That’s exactly what I’m doing with a computer purchase before the end of the year. If you want to push deductions into 2016, wait until after the first of the year to make the purchase. For 2015, section 179 of the tax code allows business owners to deduct up to $500,000 for equipment or machinery purchased this year (Source: IRS).
6. Pay Your Taxes: You may be able to get some extra deductions if you make estimated state income tax payments in 2015, rather than waiting until January 15, 2016. However, this can affect your Alternative Minimum Tax calculations, so be sure to consult with a tax accountant if you use one.
7. Convert to a Roth: If you are considering converting a traditional IRA to a Roth IRA, decide whether a 2015 conversion is best. This will largely turn on our taxable income for 2015 versus your expected taxable income in 2016. If you think 2015 will be a lower tax bracket, the conversion may make sense in 2015.
See also: The Pros and Cons of a Backdoor Roth IRA
8. Give via Credit Cards: If you want to make a charitable contribution but don’t have the cash, put the contribution on a credit card. You get the deduction this year, and you can pay off the card in January.
9. SEP IRA: If you own a small business, open a SEP IRA account. This has allowed me to save a bundle for retirement, deferring the income tax on the contributions until retirement. And, you can contribute to a SEP IRA even if you contribute to a 401(k) at work. There are contribution limits for a SEP IRA, but they are much higher than a traditional IRA. You can open a SEP IRA with just about any broker (mine is with Scottrade).
10. Pay Your Mortgage: If you itemize your deductions, you can make your January payment in December. The result will be to increase the amount of interest you paid this year. Of course, it means you’ll pay less interest next year.
11. Real Estate Taxes: If you pay your own real estate taxes, you can make those payments early as well.
12. Estimate: If you pay estimated taxes, recalculate your tax liability for 2015 before making your January 15, 2016 estimate tax payments.
As always, consult a tax professional before making any important tax moves. My tax accountant has saved me from making some really bad tax decisions in the past.