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Year End Tax Planning

December 21, 2015

 

Now that we are approaching the end of 2015, it is a good time to review your finances and do some year-end tax planning. Here are a few basic steps you can take to reduce your tax liability. 

RETIREMENT PLAN 

If you are a participant in your employer's 401k plan, review your contributions date. You still have time to adjust your contributions to the maximum amount ($18,000 plus an additional $6,000 if you are over 50). You can make this adjustment by contacting your HR department and having your withholding amount changed. 

REVIEW YOUR INVESTMENT PORTFOLIO

Now is the time to review your investment portfolio. Determine if you have significant gains or losses in 2015. If you have significant gains, you can look for poor performing stocks in your portfolio and sell them before the end of the year. The losses that occur on these sales can offset the gains you have already realized. If the poor performing stock is an asset that you wish to have in your portfolio, you can repurchase it after 31 days at the lower cost. 

CHARITABLE GIVING

Donating to charity is a win/win scenario. Besides providing resources to the charity, you can get a tax write off for the amount of your donation. If you are considering making small donations at the year-end, consider using a credit card. Since credit card transactions are accounted for on the date of the transaction, you can make a contribution on December 31st and defer payment until your next credit card statement date. Also, credit card acknowledgements are valid documentation for a donation if the amount is under $250. 

If you are donating non-cash items under $250 (clothing, books, household goods, etc.), you must receive written documentation from the charity declaring the name of the charity, date and location of the donation, and a reasonably detailed description of the property. The documentation needed when larger amounts are donated include disclosing the original cost of the property along with the fair value, and any non-cash donation over $5,000 must include a qualified appraisal (except for donated stock). 

If you are considering giving larger donations, you may want to consider giving appreciated stock. You can donate shares of stock to a charitable organization and receive a tax deduction for the fair market value of the stock. This allows you to make a contribution and dispose of an asset without paying capital gains tax on the sale of the stock. 

DOCUMENTATION

When taking deductions on your tax return, the IRS requires you to be able to document your expenses. The most common questions arise with charitable contributions and automobile expenses.

Charitable contributions require different levels of documentation based on the amount of the donation. Any cash contribution under $250 only requires a cancelled check, credit card statement, or other document that gives the name of the organization, the amount of the donation, and the date of the donation. For any cash contribution over $250, you are required to get a signed letter from the organization. This letter must give the name of the organization, the date of the contribution, the amount of the contribution, and disclose if you received anything of value as part of your contribution. For example, if you pay $500 for a table at your church dinner, you may receive a statement stating that the value received was $300 and you have an allowable contribution of $200. Also note that the purchase of raffle tickets are NEVER considered a charitable contribution by the IRS. 

In order to deduct automobile expens