CARL WATTS & ASSOCIATES

December 07, 2015

Washington DC
tel/fax 202 350-9002
With the holidays season growing nigh, taxes are probably the last thing on your mind, or close to the last. But what if you knew that some simple tax planning may save you more than just a few bucks at tax time?


Of course there is a wide variety of tactics to choose from to make sure you pay the right amount of taxes for 2015, so long as you choose the most suitable ones for your specific financial situation.

One of the important factors to consider is whether you’re going to be in a higher tax bracket the following year or not, so you can, as much as possible, shift income to the lower tax rate year, and deductions to the higher tax rate year. With this in mind, here are a few suggestions on how you can apply this tactic with your income and deductions.


If you are an employee and there is an year-end bonus coming your way, see if you can postpone it for January instead of December. If you are self-employed, try delaying billing until late December to make sure you will not receive payment until January, while making tax deductible expenses like spending on equipment and supplies before year end.

Check if you can itemize deductions for 2015 rather than claim the standard tax deduction. But, of course, unless the total of your qualifying expenses exceeds $6,300 if you are single, or $12,600 if you're married filing a joint return, itemizing would be a mistake.


Many itemized deductions are well known, such as those for mortgage interest and charitable donations. However, taxpayers sometimes overlook miscellaneous expenses, which are deductible if the combined amount adds up to more than two percent of your adjusted gross income. These deductions include tax-preparation fees, job-hunting expenses, business car expenses and professional dues.

Do not forget you can deduct the portion of medical expenses that exceed 10% percent of your AGI. There is a temporary exemption from Jan. 1, 2013 to Dec. 31, 2016 for individuals age 65 and older and their spouses. If you or your spouse are 65 years or older or turned 65 during the tax year you are allowed to deduct unreimbursed medical care expenses that exceed 7.5% of your adjusted gross income.

There is also the home office deduction. The eligibility rules for claiming a home office deduction have been loosened to allow more filers to claim this break. People who have no fixed location for their businesses can claim a home office deduction if they use the space for administrative or management activities, even if they don’t meet clients there, but must use the space exclusively for business.


Many taxpayers have avoided the home office deduction because it has been regarded as a red flag for an audit. If you legitimately qualify for the deduction, however, there should be no problem.


Other expenses you can accelerate include paying an estimated state income tax bill due January 15, or a property tax bill due early next year.


There is an year-end issue, though, because certain expenses that are deductible under the regular rules are not deductible under the Alternative Minimum Tax. State and local income taxes and property taxes, for example, are not deductible under the AMT. So, if you expect to be subject to the AMT in 2015, don’t pay the installments that are due in January 2016 in December 2015.


Initially designed to make sure wealthy people could not use legal deductions to drive down their tax bill, the AMT is now increasingly affecting the middle class. The AMT is figured separately from your regular tax liability and with different rules. You have to pay whichever tax bill is higher.


Consider also donating cash to charity by December 31 to deduct the donation this year, or donating non-cash goods such as clothes, furniture or vehicles to get a deduction this year.



What You Can Do,

Before the End of 2015 Tax Year

For all charitable contributions of cash and donations of goods worth over $250, you must have a bank record or written communication from the charity in order to claim the deduction. In addition, you must make sure that the organization is a qualified charity (you can confirm qualified charities with the IRS). To qualify for a deduction on your 2015 tax return, make sure you send any checks in the mail by December 31, 2015. If you're paying by credit card, put the gift on the card before the end of the year and pay the bill in January. Make sure you obtain a receipt for your records (either cancelled check or your credit card statement)

Another way to lower your income for the year are the tax-deferred retirement accounts. Try to increase your 401(k) contribution so that you are putting in the maximum amount of money allowed ($18,000 for 2015, $24,000 if you are age 50 or over). If you can’t afford that much, try to contribute at least the amount that will be matched by employer contributions.

You should consider contributing to an IRA. You have until April 15, 2016 to make IRA contributions for 2015, but the sooner you get your money into the account, the sooner it has the potential to start to grow tax-deferred. Making deductible contributions also reduces your taxable income for the year. You can contribute a maximum of $5,500 to an IRA for 2015, plus an extra $1,000 if you are 50 or older.



If you are self-employed, the retirement plan of choice is a Keogh plan. These plans must be established by December 31 but contributions may still be made until the tax filing deadline (including extensions) for your 2015 return. The amount you can contribute depends on the type of Keogh plan you choose.

You may also want to consider different education savings options. If you want to contribute to a Coverdell Education Savings Account or a 529 collage savings plan for your child or grandchild you can make contributions of up to $2,000 per child (not per account). Though you cannot deduct education savings account contributions on your federal tax return, you may qualify to claim at least a partial deduction or credit on your state tax return, as long as you fund the account by December 31.

And if you want to make your next tax season go smoothly, get started now and take the following easy steps:


  • Make a tax checklist to help you gather all the tax documents you’ll need to complete your tax return;
  • Keep all the information that comes in the mail in January, such as W-2s, 1099s and mortgage interest statements. Be careful not to throw out any tax-related documents, even if they don’t look very important;

  • Collect receipts and information that you have piled up during the year;
  • Group similar documents together, putting them in different file folders if there are enough papers;
  • Make sure you know the price you paid for any stocks or funds you have sold. If you don’t, call your broker before you start to prepare your tax return. Know the details on income from rental properties. Don’t assume that your tax-free municipal bonds are completely free of taxes. Having this type of information at your fingertips will save you another trip through your files.


As always, and perhaps most important of all, do not take any significant action on year-end strategies without first discussing them with your tax professional or financial consultant.

One last thing, please don’t overdo your holidays spendings, these are not tax deductible!