Kansas City, MO,
24
November
2015
|
05:44 PM
America/Chicago

Try These 7 End-of-Year Tax Tips to Save Money, Boost Refund

It ain’t over til it’s over, and 2015 isn’t over. Taxpayers still have time to influence their tax future. Many taxpayers can do something to lower their tax liability with these seven end-of-year tax tips.

#1: To save money, save money

One way to save money on taxes is to save money – in tax-advantaged retirement accounts. Saving leads to more saving.

Contributions to a 401(k) or IRA are pre-tax or tax-deductible, respectively, which reduces taxable income and potentially the tax bill. Taxpayers can contribute up to $18,000, or $24,000 if they are 50 or older, to their 401(k). They can save up to $5,500, or $6,500 if 50 or older, in a traditional IRA. Taxpayers who deduct their IRA contributions can designate contributions they make through April 15, 2016, on their 2015 tax returns, giving them a little more time to sock away that money and boost their tax benefit for 2015.

Maxing out a 401(k) and IRA at age 50 could lower taxable income by $30,500 – or, for a taxpayer with a 25 percent marginal tax rate, provide a tax benefit of more than $7,625. The IRA deduction is limited for higher-earning taxpayers participating in a 401(k) or other employer plan.

#2: To save money, give money

Another way to save money on taxes is to give money away. If taxpayers give to qualified organizations and itemize their deductions, their charitable contributions could lower their taxable income. Taxpayers need to keep receipts, pictures or other documentation of any noncash donation. A $1,000 donation for someone in the 25-percent bracket who itemizes deductions can see $250 in savings.

#3: To save money, pay bills

Paying bills early is another way to save money on taxes. Students and their families who haven’t maxed out the American Opportunity Credit can pay spring tuition before December 31 for an added tax break. Or, people repaying their student loans could make an extra payment to deduct more interest, up to $2,500, on the 2015 return. Homeowners could pay their December mortgage payment due in early January this year to increase their itemized deduction for mortgage interest paid.

In all these cases, taxpayers should remember that tax planning occurs over a multi-year horizon. Paying an extra amount this year could hurt some taxpayers in 2016.

#4: To save money, lose money

The Dow Jones has decreased since this summer so this could be a good time to help trim that tax bill. Those with a large net capital gain in 2015 could reduce their tax liability by selling stock before December 31 if it would reduce the gain or generate a loss. Taxpayers should look at their whole financial picture with an investment advisor before offsetting their capital gains with losses in this way. They should not make these decisions for tax purposes alone.

#5: To save money, spend money

It’s the triple play of tax savings. Putting money in a health savings account (HSA) during the year saves taxpayers from paying taxes on that amount. Individuals can save $3,350, families $6,650 and taxpayers 55 or older can save an additional $1,000 in their HSA. But, taxpayers can also use this money tax-free on qualified medical expenses. And funds left in the HSA grow tax-free.

Flexible spending accounts (FSAs) are also another great savings tool and work similarly to an HSA. But, whatever funds taxpayers don’t spend before the end of the year – or grace period, if their company’s plan provides one – is just money left on the table. They can use this money for unreimbursed medical expenses like eyeglasses, prescription medications, medical equipment or copays.

#6: To save money, get health insurance

Tax penalties for being without health insurance in 2016 will increase for the second year in a row. Taxpayers could have to pay a penalty of $695 per uncovered adult and $347 per uncovered child (to a maximum of $2,085) or 2.5 percent of their household income over their filing threshold, whichever is greater. That means a family of four earning $60,000 could pay a penalty of more than $2,000 for 2016. For 2014, their penalty would have been around $400.

To avoid these penalties in 2016, taxpayers may enroll in a health insurance plan on the marketplace starting November 1. Some taxpayers will also qualify for advance premium tax credits to help them pay their health insurance premiums.

#7: To save money, pay attention

Many popular tax breaks expired at the end of 2014 and have not yet been extended. These include the deduction for state and local general sales tax, tuition and fees deduction, educator’s expense deduction and tax-free qualified charitable distributions from IRAs. It may be the end of the year or early next year before Congress acts on the expired breaks. Taxpayers will need to stay tuned to learn whether they can use these tax breaks for 2015.

There are a lot of ways for taxpayers to save money on their taxes – from saving, giving, losing and spending money to paying bills and getting health insurance. The trick is to save, give, lose and spend money in the right way. Taxpayers can use online tax calculators to estimate their tax refunds and should always talk to a trusted tax professional when in doubt.

Contacts
photo:Colby Brown
Colby Brown
Vice President Investor Relations
816-854-4559
Share this release
Share on: Twitter
Share on: Facebook
Share on: LinkedIn
Latest news