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Tax Strategies Scan: More Year-End Tips
Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
5 year-end tax tips for clients: As the year draws to a close, investors should keep in mind their financial obligations to avoid certain consequences such as tax penalties, according to U.S. News & World Report. Mutual fund owners could face a huge tax liability from returns accumulated before the fund was purchased. For seniors, the deadline for making minimum distributions for retirement plans becomes Dec. 31 after the initial year of taking such distributions. -- U.S. News & World Report
How to avoid capital gains tax on stocks: I just did it, and your client can, too: Long-term capital gains tax rates vary depending on the tax bracket, with taxpayers in the 10%-15% tax bracket paying no tax at all, according to Motley Fool. Those who are in the 15% tax bracket have a taxable income of $36,900 for singles, $73,800 for joint filers, and $49,400 for heads of households. To avoid paying long-term capital gains tax, taxpayers need to have a taxable income that won't exceed these figures, and may keep their income low by taking tax deductions, such as the standard deduction, personal exemptions, and the Child Tax Credit. -- Motley Fool
How to lower your client's tax bill: Clients are likely to face big capital gains tax as stocks soared this year, but they may reduce their tax by deferring their income and accelerating deductions, says Robert Willens, a CPA and president of Robert Willens. They may also consider donating the securities instead of selling them and donate the money, so they won't pay capital gains and still take a deduction amounting to the security's fair value, Willens says. Harvesting losses by disposing of assets with dwindling value is also another way for investors to lower the tax bill. -- Barron's
When your clients pay a higher tax rate: Rich people pay higher tax rates as their investment income undergoes double taxation, according to Forbes. Despite having lower taxes than labor income, investment income is still taxed in the corporate level, which makes tax burdens higher. -- Forbes
Year-end charitable tax tips: Taxpayers can donate tangible property or cash to charities to reduce their tax bills, according to Forbes. To get tax deductions, donations in the form of household items should be in good used condition or accompanied by a qualified appraisal, cash donations need to be proven by a written receipt from the charity or a bank record. Tax deductions for charitable gifts may be obtained by itemizing these donations on Schedule A of Form 1040. -- Forbes
7 smart year-end tax moves to prepare for 2015: Clients are advised to check if there are last-minute tax deductions and to take a financial inventory before the year ends to prepare for the tax season in 2015, according to Forbes. They also need to determine their effective tax rate, account for all Roth conversions, and act on any withholding issues for next year. Clients can also reduce their tax bill if they incurred investment losses, and use the remaining amount in their flexible spending account before Dec. 31. -- Forbes
9 rules for tax-smart charitable giving: People who intend to give to charities need to remember a few things to get tax benefits when filing their tax returns in April, according to Time Money. They are advised to itemize tax deductions instead of taking the standard deduction, donate to a legitimate charity, and make sure they make the donation by Dec. 31. They also need to have a receipt of the donation, make sure the donated goods are in good condition and valuated accordingly. If they opt to donate highly appreciated investments, they won't pay taxes on capital gains and deduct the full market value of these investments from their tax bill. -- Time Money
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