Image source: 401kcalculator.org via Flickr.
2015 is drawing to a close, but you still have a chance to adjust your tax plan for the rest of the year. These three year-end tax tips for 2015 will help you stay on Uncle Sam's good side while potentially lowering your taxes and helping you put more of your money to work for you.
All of these tips can help you, but you need to get moving. You have until December 31, 2015 to execute any decisions you may make based on these tips, and if you miss that deadline, they can no longer help you.
Tip No. 1: Get your withholdings right for "safe harbor."
To stay in Uncle Sam's good graces and avoid a penalty for underpaying your 2015 taxes, you need to be within a "safe harbor" in terms of paying close to what you owe for the year. To be within the 2015 safe harbor, you need to pay via timely estimated payments or withholdings enough so that for 2015, you meet at least one of the following tests:
- You owe less than $1,000 in taxes for 2015 when you file in 2016.
- You've paid at least 90% of what you owe for 2015 (66 2/3 for farmers and fishermen).
- You've paid at least 100% of what you owed for 2014 (110% if you had an adjusted gross income of $150,000 or more in 2014, or income of $75,000 or more and expect to file married filing separately for 2015).
You have up until your last paycheck or retirement plan withdrawal in 2015 to use withholdings to reach your safe harbor. To adjust your withholdings, you need to submit IRS form W4 or your employer's or retirement plan provider's substitute in time for them to make any needed changes before your last paycheck or distribution.
Tip No. 2: Cut your taxes and improve your retirement at the same time with your 401k.
Money you contribute to your traditional 401k both builds your retirement nest egg and lowers your tax bill by reducing your taxable income for the year. Additionally, if your employer offers you a match for your contribution, boosting the amount you sock away might also turn into more money toward your retirement, courtesy of your boss.
You have until your last paycheck in 2015 to contribute to your 401k for 2015. Your employer should be able to tell you the deadline for making any adjustments that can be reflected in time. If you're under age 50, you can contribute up to $18,000 for the year, and if you're age 50 or better, you get an additional $6,000 via a "catch-up" provision.
Tip No. 3: Decide whether to pay your property taxes in December 2015 or January 2016 (if allowed).
Property taxes are potentially deductible on your federal income taxes, and they're deductible in the year you pay those taxes. For you to benefit from that property tax deduction, though, your total deductions need to be greater than the standard deduction you could get if you don't itemize.
Because of that, it may make sense to "bundle" two years of property taxes together in the same tax year. For instance, if you paid your 2015 property taxes in January 2015 and pay your 2016 property taxes in December 2015, you'll have twice the potentially deductible property tax in 2015 than had you paid each in a separate year.
By looking across multiple years, you may be able to trade between the standard deduction one year and a larger itemized deduction the next year, thereby saving more in taxes across the two-year total. If you want to start that plan now, you have until December 31, 2015 to make any payments in 2015.
Taxes: a certainty in life you have some control over
As Benjamin Franklin said, "In this world nothing can be said to be certain, except death and taxes." Despite that saying still largely holding true, these three tips can help you take steps to get smarter about how and when you pay those taxes, in order to keep your total tax-related costs down. Time is running out to take advantage of them for 2015, though, so get your plans in place now if you're interested.
