2016 is already off to a quick start and with April 15th getting closer, it’s that time of year again to think about your taxes. We’ve all seen the countless television ads but have you actually followed through and filed your taxes yet? How you decide to file depends on your personal situation and until you complete your filing, you won’t know for sure how much you might owe or receive as a refund. Though 2015 is over, it is the right time to consider some savvy approaches to possible deductions for next year.
Most retirement accounts offer tax benefits and by investing in one such as a 401k or IRA you can save for the future and take advantage of those tax benefits whether they are today or still to come. By investing in one of these retirement accounts, your taxable income is actually reduced and the funds continue to grow tax deferred until you withdraw from the account. If a retirement account is offered through work, employers will often match your contributions and sometimes additionally make a profit sharing contribution. All these accounts have contribution limits and if you have a qualified plan with your employer, your outside IRA contribution is not tax-deductible. The IRA investment, though, grows tax deferred and still offers a tax benefit down the road. By maximizing your contributions to retirement you are saving for the future while also reducing your taxable income for your next filing.
Charitable donations are a great way to give back to the organizations close to your heart while also reducing the income you declare when filing taxes. Contributions can be made directly to the charity by writing a check or donating securities that have increased in value. These donations help to lower your estate and by donating securities you will also avoid paying capital gains tax on any accumulated appreciation. However, these aren’t the only ways to make charitable contributions. You can also deduct goods and supplies donated as long as you keep the correct documentation. Although you can’t write off the time you’ve given to an organization, mileage and purchases made for it are deductible. Be sure to have the charity write you a receipt for anything you plan to deduct though because the IRS requires full documentation in order for you take the deduction.
With such volatile markets in 2015 your investment portfolio may have been down, but you may get some relief by taking a tax deduction for your losses. If you sell securities at a loss, you can deduct up to $3,000 from your income after offsetting any capital gains. If you had greater losses in 2015, you can carry forward the loss each year offsetting future gains. Of course your investment professional should be working year round to manage your potential tax liability and can assess the best fit between your taxable and tax deferred accounts.
These are just a few strategies you can use to reduce your tax bill going forward. Your investment advisor and tax professional can help to ensure you’re using all of the best approaches to reduce your taxes.