Finance & Enjoyment Blog

Year-end Tax Planning Time – Tips to Get Started

It is hard to believe that 2015 is winding down. Before we know it, it will be 2016 and tax season will be upon us. As your Denver CPA, we want to ensure you have a good tax season, but preparation begins now. To help you maximize your tax refund (or minimize your taxes), we have put together several things you can do now as part of your year-end tax planning.

Evaluate Your Investment Performance

Now is a great time to review your stock statements. If you see some stocks that look to be underperforming, you may consider dropping them from your portfolio. Then, you can optimize your investments around stocks that seem to perform better and fine tune your long-term investments. From a year-end tax-planning standpoint, you may have the ability to realize investment losses to offset any gains. For example, if you sell one of your stocks for a $2,000 profit, but another one for a $1,000 loss, only $1,000 in net investment profit will be taxable as income. You can claim up to $3,000 worth of net investment losses.

Adjust Withholdings

In recent years, 80 percent of Americans have ended up getting money back from the IRS. While that may sound good, it means that you could be having too much removed from your paycheck. When the IRS hangs on to your money for an extended time you miss out on earning interest. So, when you have too much money withheld, you are allowing the federal government to use it for free. As we near the end of the year, use a tax-caluculator and see what you might owe and adjust. Then you can pocket some of that money and even use it to increase contributions into 401(k) accounts.

Give to Charities

Along the same lines as taking an early look at what you may owe the IRS, you can use that information to calculate charitable giving. Charitable giving can help you get the full benefit of deductions you are entitled to, so it is beneficial to take an early look. To deduct those amounts, you need to make sure you make those contributions by December 31 and keep the receipts.

Retirement Plans

We wrote about this in the past, but one of the best tax-reducing tools available is your 401(k) or similar retirement plans. You can contribute as much as $18,000 a year toward your 401(k), or $24,000 if you are over 50. If those contributions are pre-tax, then your taxable income would be reduced by the total amount of your contributions for the year.

Time Your Mutual Fund Purchases

One thing many people do is buy into mutual funds before those accounts make their annual distributions of dividends and capital gains. While it might seem smart to buy before those payouts, it may not be. If those funds, for example, pay $3 per share to their holder, the value of the share drops by the same amount, so you do not end up with a gain. Plus, you can be taxed for that payout, even if you did not hold those shares during the time they appreciated. That leaves you with a capital gains tax.

How to Use this Information

When it comes to tax planning and preparation, we want to see you succeed. Here at KKB, our team offers tax planning to help you build your financial success. Call us at 303-815-1100 or contact us online. We will be happy to sit down with you and see how we can help.

What are some of your favorite tax planning tips?


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