The holidays are all about giving to others, relaxing, reflecting, and surrounding yourself by the friends and family that you love. It's also a time when the immediacy of tax season begins to creep into our minds.
Although your 2015 tax return isn't due until April 15, 2016, the vast majority of tax moves available to you, which could wind up lowering your taxable income, need to be completed by 11:59pm on Dec. 31, 2015. The big exception would be contributions to an Individual Retirement Account, which can be completed up until April 15, 2016 and applied retroactively to your 2015 tax return.
The bad news is it means you don't have much time left to make money-saving tax moves. But, it also means not all hope is lost if you're looking to lower your taxable income. If you want a handful of quick and easy ideas to lower your taxable income, look no further than these:
Pump up your retirement account
Sure, you still have well over three months left to contribute to an IRA, but the clock is ticking away fast on your ability to contribute to your employer-sponsored 401(k). As an individual aged 49 and under, you're allowed to contribute up to $18,000 to your 401(k) in 2015 (as well as in 2016). A catch-up contribution exists for those aged 50 and over of $6,000, meaning a maximum of $24,000 can be contributed to a 401(k) in 2015. The more you add up to your contribution limit, the less taxable income you'll report since the money headed into your 401(k) is pre-tax dollars.
Be a giver
One of the easiest ways to lower your taxable income is by donating to your favorite charity, or charities of choice. Making a donation by credit card can be particularly worthwhile around this time of year (as long as you're not carrying a balance month-to-month), because the bill won't be due until after the potentially costly holiday season has passed. You'll want to make sure that your donation comes with a receipt that can validate the value of your gift to the IRS, and also ensure that the organization you're donating to is a qualified one recognized by the IRS.
You can also consider giving a monetary gift to friends, family... heck, anyone you like! The maximum tax-free gift to any one person is $14,000 in 2015, but there is no limit to the number of people you bestow a $14,000 gift upon in 2015.
Sell those losers
Do you have an investment, or series of investments, in your portfolio that you just don't see panning out? You can always consider selling them at a loss to potentially reduce your capital gains for the year, or, if you're reporting a capital loss, reduce your taxable income by as much as $3,000.
It's important to keep in mind that you shouldn't just sell a stock because it's lost you money. If a company still has a sound business model and the investment thesis is still intact, there's probably no reason to sell. Plus, if you do sell stock(s) at a loss, you have to wait 31 days before you can purchase it again, otherwise the IRS will not allow you to claim the tax write-off (known as the wash rule).
Be smart about college
Although this doesn't apply to everyone, you may want to consider diverting some of your disposable income into a 529 college savings plan. A 529 plan is a lot like a Roth IRA in that the money within the account is completely free of taxation as long as it's used for qualifying purposes, which in this case would be tuition, fees, textbooks, supplies, and room and board. Opening a 529 plan or adding to a 529 plan won't qualify you for a federal deduction, but 34 states do allow a partial deduction or credit for residents contributing to a 529 plan. Not only would you be giving your children a head start on their potentially costly college education, but you may also be helping your own pocketbook.
Finally, consider making a positive impact on your taxable income, and possibly your carbon footprint, by investing in energy-efficient upgrades around your home. Installing solar panels, a solar water heater, or wind turbines around your home could qualify you for a 30% deduction on the total cost of the project, including installation. There's also no upper limit on the amount you can deduct for the Residential Energy Efficient Property Credit.
Homeowners also have a lifetime credit of $500 they can take advantage of by claiming a 10% tax credit for the cost of energy efficiency improvements to windows, a furnace, or a furnace circulating fan, for example. There are limits as to how much of the $500 lifetime limit can be deducted for a single repair project (windows, for instance, have a max $200 deduction out of the $500 lifetime limit), so you'll want to be aware of these limits.
Time's a-wasting, so don't dawdle. Make these last-minute money-saving tax moves now!
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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