It may seem a bit early to be thinking about taxes, but now is a great time to try and reduce your 2015 tax liability. There are several steps you may be able to take before the end of the year that can result in more money in your pocket when tax time comes.
Matt Frankel: If you have any losing investments in your portfolio, you could use the strategy of tax-loss harvesting to boost your tax refund.
Tax-loss harvesting means strategically selling investments at a loss in order to reap the tax benefits. The IRS allows investment losses to be used to offset capital gains for tax purposes. So, if you have $2,000 in capital gains for 2015 and sell an investment at a $500 loss, you'll only have to pay capital gains taxes on $1,500.
Even if you don't have any capital gains to offset, you can use investment losses to reduce your income. For the 2015 tax year, you can claim up to $3,000 in investment losses, and any excess can be carried over until next year. This can be rather valuable -- if you're in the 25% tax bracket, $3,000 worth of investment losses can reduce your tax liability or increase your refund by $750.
A word of caution -- don't sell investments you still believe in for the long term simply to capture the tax benefits. However, if you're hanging on to some losing investments and have been debating whether or not they're worth keeping, tax-loss harvesting could give you the push you need to finally redeploy that capital elsewhere.
Selena Maranjian: One way to boost your tax refund, for some people, is to change their tax-filing status. Don't just assume that if you're married, filing jointly is the right thing to do. It often is, but not always. You and your spouse may be able to shrink your total tax bill -- and thereby increase your refund(s) -- by filing your taxes separately.
One example of when this might make sense is if one of you has hefty medical bills. Many medical expenses are deductible from your taxable income, but only to the extent that they exceed 10% of your Adjusted Gross Income (AGI). That hurdle becomes extra high when two spouses' incomes are combined. Thus, filing separately may make it easier to exceed the 10% hurdle and shrink your taxable income with medical-expense deductions.
Another filing-status change that can help you is if you can file as a head of household, as that status offers bigger tax breaks than those for merely single folks. To qualify, you'll need to have at least one child living with you for more than half the year and to have paid at least half of the cost of maintaining the household. There are other ways to qualify too, such as if you're paying more than half of a parent's housing expense or have a qualifying relative living with you.
If you think a filing status change might shrink your tax bill, consider consulting a tax pro for confirmation, because there are many moving parts to our tax obligations and a change in status could cost you more dollars than it saves. It can be well worth exploring this option, though.
Dan Caplinger: A common way to boost your tax refund at this time of year is to consider making charitable gifts. In particular, because of the strong performance of the stock market over the past several years, giving stock that has risen in value can be a truly tax-smart move.
The tax laws allow you to give stock that has appreciated in value to charity without treating it as a taxable event for you. As a result, you don't have to pay capital gains tax on the amount by which your shares have gone up in value. Instead, the charity takes possession of the stock and then sells the shares itself, and because the charity is a tax-exempt organization, it doesn't have any tax liability on the sale.
Even better, as long as the gain on the shares qualifies for long-term capital gains treatment, you're allowed to deduct the full market value of the stock at the time of the gift. That gives you a deduction even on the amount of gain on which you avoided having to pay capital gains tax, essentially giving you a double tax benefit on the gift.
If you're thinking about a gift of appreciated stock, one piece of advice is not to wait until the last minute. Brokers often need extra time to process a stock transfer, so get moving sooner rather than later to take advantage of this smart opportunity.
Sean Williams: Tax time... yuck! Am I right? The good news is that if you're looking for last minute ideas for ways to boost your tax refund -- around 80% of tax filers wind up getting a refund from the IRS -- you could always consider making a qualifying energy efficient upgrade to your home.
The Residential Energy Efficient Property Credit is perhaps the juiciest of all tax credits available to homeowners. With no ceiling on the amount you spend, homeowners can take a credit on their taxes totaling 30% of their costs to install a solar-power system, a solar water heater, residential wind turbines, or geothermal heat pumps. With solar panel costs dropping substantially from where they were a few years ago, and solar efficiency rising, a solar system for your principle residence or second home (note: rentals do not qualify) could yield a fat tax refund. Plus, if you plan to live in your home for a decade or longer it could net you substantial cost-savings on your electric bill.
Other credits are available that won't cost as much as an entire solar-power system. Consider purchasing new doors or insulated windows as an example. The Non-Business Energy Property Credit allows homeowners a maximum credit over their lifetime of $500 for making their home more energy efficient. A homeowner can claim up to 10% of the cost of new windows or doors on their taxes, and can do so over multiple years or even decades. The magic number to remember here is that you can't claim more than $500 in credits during your lifetime. One last note: The IRS suggests that you ensure the windows and doors you purchase have a manufacturer's credit certification statement, otherwise the upgrades may not qualify you for the credit.
Jason Hall: Chances are, your employer offers some sort of retirement plan at work, such as a 401(k). If that's the case, and you're like most Americans, then you're not coming close to maxing out your annual contribution limit of $18,000 ($24,000 if you're over 49) to that plan.
And since traditional 401(K) contributions are pre-tax, you'll lower your taxable income with every dollar you contribute. So if you pay a 15% federal income tax rate, you'll reduce your tax bill by $150 for every $1,000 you contribute to your retirement plan.
As an extra perk, that money will grow tax-deferred until you take distributions when you retire. Nice!
Don't have a retirement plan at work? Contribute up to $5,500 ($6,500 if you're over 49) to a traditional IRA this year, and you'll be able to deduct that from your taxable income when you file your taxes.
Don't have an extra $5,500 lying around to contribute before year-end? Don't stress. The IRS allows you to make contributions for 2015 as late as April 15, 2016, and still get the deduction.
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