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3 Tips for End of Year Tax Planning

| December 09, 2014
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Whether 2014 was a prosperous year, a struggle to rebound from losses, or an uphill climb to get your business off the ground, a year-end tax strategy will help you keep more of the money you’ve earned. Though April 15 is the deadline for filing your 2014 taxes, making smart tax moves before December 31 will help you minimize your tax burden.

Tax-payers should recognize the opportunities to maximize income and gift tax savings based on their unique financial situation. By formulating a smart tax plan, individuals and families can reduce eventual estate taxes, maximize retirement funds, and better manage cash flow to meet their financial objectives. Tax planning strategies can defer this year’s tax to a future year, which will free up cash now for investment, business or personal use. The following end-of-year tax planning tips offer a starting point for your strategy.

Contribute the maximum amount to retirement accounts and tax-advantaged savings plans.

Tax-deferred retirement accounts are a wise investment because they can grow to a considerable sum as they compound free of taxes over time. 

A Company-sponsored 401(k) plan is one of the most beneficial options because employers often match contributions. Putting as much money as you can into your company’s 401(k) or similar workplace retirement savings plan will leave you with less money that the IRS can touch, and doing it sooner rather than later will give you longer to grow your tax-deferred earnings. If possible, contribute at least the amount that will be matched by employer contributions. Consult with your benefits office to learn about your plan’s rules, but in most cases, you can modify your 401(k) contributions at any time.

Contributions to an IRA are another viable option. You can make IRA contributions for 2014 until April 15, 2015, but the sooner you act, the sooner your account has the potential for tax deferred growth. In 2014, the maximum contribution to an IRA is $5,500, plus an extra $1,000 if you are 50 years old or older.

Make contributions to charity.

For those who itemize their tax deductions, charitable contributions may be an important aspect of a smart tax-reduction plan.

One common strategy is donating appreciated securities, such as stocks or bonds, to charity. This will offer two benefits. The tax code permits using the current market value of the asset as a tax deduction without you having to pay tax on the capital appreciation, so you are able to claim the charitable contribution as a deduction AND avoid paying capital gains tax.

If you are planning on using charitable contributions in your tax strategy this year, remember to get a receipt for every contribution you make, not just those greater than $250.

Adjust your withholding.

If you withhold too little money from your earnings, you could receive a big tax bill when you file your return. Withhold too much money from your earnings and you’re giving the IRS a tax-free loan that you could be using to pay down debt or save for retirement. Your goal should be to find balance between the money withheld from your earnings and your actual tax liability. Adjust your withholding for 2014 by making changes to the W-4 on file with your employer, or, if you make quarterly payments, by increasing or decreasing your payments before the last payment is due in January.

 Time is running out to make your plans for your 2014 tax filing. Utilize a tax planning strategy that best fits your needs, and use these tips as a starting point for your end-of-year tax planning. Need more help? Our website offers great tax resources, such as a tax calendar, tax forms, publications, and current tax rates to start you in the right direction. 

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