There are certainly plenty of last-minute tax tips that can save you money this tax year. But you will benefit even more if you start planning for tax-year 2015 beginning in January. While you are scrambling to reduce your 2014 tax bill, consider these steps that will allow you to further decrease your taxes in 2015.
Make Roth IRA contributions as soon as possible. Too many people wait until the tax deadline to contribute to a Roth IRA, but you are giving up tax-free growth when you make your deposit at the last minute. Compared with a person who always contributes in December, a January contributor gets an additional year of tax-free growth. It doesn’t seem like a big difference when you consider a single year, but an extra year of compound interest every year for a few decades could be worth thousands of dollars. Let’s say you put in $5,500 a year for 30 years and the market grows 8 percent annually. By then, your account will be worth $672,902. With another year added because all your contributions were made on the first trading day instead of the last, that’s an extra $53,832 in your account.
Remember to use up all the funds in your flexible spending account. Many people are frantic to use up their FSA funds at the end of the year. Some people forget to collect the receipts, while others simply don’t know what can be reimbursed. Contributing to a FSA can increase your take-home pay, but the funds can also be wasted if you don’t submit timely claims. Ask your benefits director for a list of what can be reimbursed, and figure out how much you should set aside. Remember to submit the receipts as you get them or collect them in a designated place throughout the year.
Donating appreciated securities is a smarter way to help your favorite charity. If you donate appreciated stocks or property to a charity neither party has to pay capital gains taxes. Everyone who invests consistently should have some positions that are worth more than when they purchased them. Consider donating those shares next time you want to support a cause. If the charity only accepts cash, then consider a donor advised fund. It’s easy to setup, and you get the same tax benefit.
Tax loss harvest throughout the year. Stock market volatility can be your friend because you are able to share your losses with Uncle Sam via tax loss harvesting. When a security goes down, you can sell it and buy it back after 30 days, thus avoiding the wash sale rule and increasing your realized tax loss. If being out of the market is a worry for you, then purchase another security that isn’t substantially identical, according to the IRS, but responds similarly to market forces as what you just sold.
Plan your deductions for the year in January. You can get extra tax deductions by prepaying your property taxes or making your January mortgage payment in December, but not everybody has the extra funds to do this when they are reminded at the last minute. To reap the rewards next year, start saving at the beginning of the year so you will have the money to take advantage of even more tax savings. For those who hate having idle cash, at least the yield on online savings accounts is increasing these days.
There are three stages of tax optimization, with each level reaping more monetary rewards. The first level includes the people who don’t think about saving money on taxes at all. The second level contains those who scramble at the end of the year to save just a bit more. You should be at the third stage, where you are thinking about tax saving opportunities throughout the year.
David Ning is the founder of MoneyNing.com .
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5 Tax Maneuvers to Make in 2015 originally appeared on usnews.com
