Year-End Tax Saving Strategies

As 2015 quickly comes to a close, now is the time to sit down and consider what you might do to reduce your April 15 tax bill.

  • Tax Loss Harvesting. The stock market is relatively flat for the year but most investors will find both winners and losers within their investments.  Take a moment before year-end to review your portfolio for rebalancing realizing that up to $3,000 of realized losses in excess of realized gains can be deducted against ordinary income taxes.

Tax Tip: If you are married, filing jointly, and your adjusted gross income is less than $74,901 ($37,451 for single filers), your tax rate on long-term capital gains is 0%.  Use this as an opportunity to eliminate the tax on gains on appreciated stocks.  If you like the stock, wait 31 days and repurchase it thus establishing a higher cost basis.

  • Charitable gifts. Another way to reduce your income taxes is to make gifts to qualified charities.  This can be in the form of cash, securities or personal items.  If you’re thinking of gifting securities, it’s generally best to give appreciated securities instead of cash since you are giving away the ‘tax problem’ associated with the appreciated stock.  If you still want to own the stock you can repurchase it immediately using your cash…meaning no thirty-one day waiting period applies.  If you’re interested in the charitable tax deduction but have not decided on the specific charities, consider setting up a Donor Advised Fund (DAF).  This guarantees you’ll receive the full deduction this year but allow you to dole your gifts out over the next several months or years. For more information about your local DAF, contact:
    • In Birmingham: Community Foundation of Greater Birmingham (205) 327-3800.
    • In Huntsville: Community Foundation of Huntsville/Madison County (256) 535-2065.
    • In Mobile: Community Foundation of South Alabama (251) 438-5591.

Tax Tip:  Note that to receive a full deduction this year, gifts of cash cannot exceed 50% of adjusted gross income while the limitation on appreciated assets, such as stocks, is thirty percent.

  • Retirement plan contributions. If you have not maxed out your contributions to your company 401-k you can use the remaining paydays to increase your investment and income tax deduction at the same time.  You’ll need to contact your human resources department for their assistance in adjusting your payroll deduction.  This year you can contribute up to $18,000 to your 401k or similar plan.  If you are age 50 or older this year, you can contribute an additional $6,000 for a total of $24,000.

Tax Tip:  At a minimum, calculate and capture your company’s matching contribution!

  • Roth Conversion. If for some reason your tax rate will be low for this year, consider converting all or a portion of your IRA to a Roth IRA.  When you convert a traditional deductible IRA to a Roth IRA, you create ordinary income.

Tax Tip:  If it turns out not to be a good deal, you are allowed to ‘reverse’ the conversion any time before filing your 2015 tax return including extensions (potentially as late as October 15th, 2016).  That gives you about ten months from now to determine if it was a good deal.

  • Changes to Medicare. Don’t forget to review your Medicare plans to ensure you have the most appropriate plan based on your situation.   The open enrollment period ends Monday, December 7th. 

Tax Tip:Properly aligning your Medicare medical and prescription coverage can save you hundreds, if not thousands of dollars,” says Kimberly Reynolds, CFP® of The Welch Group. Visit for more information about the various plan choices.

Meet with your CPA or Certified Financial Planner® before the end of the year to see what other strategies may be available to reduce your 2015 taxes.