Clarksville, TN – Contrary to popular belief, tax planning isn’t limited to the months between year-end and the filing deadline. In fact, smart tax planning goes beyond deductions and credits and should be incorporated throughout the year. Keep in mind that this year’s filing deadline will take place on April 18th, as the District of Columbia is celebrating Emancipation Day on Friday, April 15th.
As Americans prepare to file their 2015 returns, there are some things we should be thinking about – and if lowering your taxes is a priority, starting a conversation with your tax advisor about ways to save money come April 18th can be a good idea.
Consider these perennial options:
- Put pretax dollars to work. Flexible savings accounts – available during your employer’s open enrollment period – allow you to use pretax dollars to pay for qualified expenses. You can also use pretax retirement contributions to reduce your taxable income.
- Fill in the blanks. Work with your financial advisor to make sure all the cost-basis information is complete and accurate before calculating losses and gains for tax-loss harvesting purposes.
- Pursue tax-efficient investing. Investing should be focused on meeting your goals, not just on reducing taxes. But in some cases the two dovetail nicely. For example, interest* from municipal bonds is generally exempt from federal and state income tax (if you’re a resident of the state the bond is issued in). You could also sell underperforming stocks to offset realized gains.
If you haven’t already filed your taxes, be sure to consider maximizing your retirement account contributions. You can contribute up to $5,500 to either a traditional or Roth IRA ahead of the April 18th filing deadline. If you’re over 50, you can contribute an extra $1,000.**
For all taxpayers, it’s important to take a look at what tax strategies could benefit your specific situation without losing sight of your overall financial goals. Reviewing your investments in light of your goals, the tax environment and the economic landscape can help you see where adjustments need to be made to position yourself for 2016 and beyond.
Remember, daylight saving time begins at 2:00am on Sunday, March 13th. Be sure to move your clocks forward one hour.
*Interest may be subject to the federal alternative minimum tax and state or local taxes. Profits and losses on federally tax-exempt bonds may be subject to capital gains tax treatment. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax.
** Withdrawals from traditional IRA accounts may be subject to income taxes, and prior to age 59 1/2 a 10% federal penalty tax may apply. Withdrawals from Roth IRA accounts prior to age 59 1/2 may be subject to a 10% federal penalty tax.