Tax Tips (03/08/2016)

Before year-end you could have employed many strategies to help with possible 2015 tax savings. Although you might have missed those opportunities, potential options are still available that could make this tax-filing season cheaper and easier.

Make sure you gather all of your tax documentation before starting, including W-2s, 1099s, mortgage interest statements, and receipts.  If you do not include all of this information, you will have to file an amended return and this creates additional filing costs as well as the chance of a higher tax bill.  Use whatever method works for you in keeping track of the documents whether it may be a folder, shoebox or electronic files.

Determine if you have made all retirement contributions that are available to you.  You have until April 18, 2016 to open and fund a traditional or Roth IRA (individual retirement account).  The traditional IRA offers you a full deduction on your taxes if you are not eligible to contribute in a company retirement plan, or if you are eligible, your adjusted gross income is $61,000 or less for singles, or $98,000 or less for married couples filing jointly.  If you are not eligible for a company plan but your spouse is, your traditional IRA contribution is fully-deductible as long as your combined gross income does not exceed $183,000.  The Roth IRA operates under the same income guidelines, but your contribution is tax deferred rather than tax deductible. Your tax savings is not immediate but could prove powerful in the distribution years when your withdrawal is tax-free.

For 2015, the maximum IRA contribution you can make is $5,500 and if you are age 50 or older by the end of the year, you can contribute $6,500. SEP and Keogh retirement plans are an option for self-employed persons. These types of plans offer a higher contribution depending on your income. The maximum amount for 2015 is $53,000. 

You may not be eligible, but itemizing could provide for a higher tax deduction than your standard deduction.  The standard deduction for 2015 is $6,300 for singles and $12,600 for married couples filing jointly.  Mortgage interest, property taxes and charitable donations are some of the more common itemized deductions.  Other miscellaneous expenses that could be deductible if they are over 2% of your adjusted gross income are tax-preparation fees, job-hunting expenses, business car expenses and professional dues.  Medical or Home Office expenses may be an option as well.  Energy savings could also be deductible.  You may also have investment losses to use that were carried over from prior years.

If you are not able to use any of the strategies or deductions for 2015, remember to keep the possibilities in mind for 2016.  Being organized as you go is helpful to not miss opportunities and keep you from paying penalties or late fees.  

Lisa A. Dugan

March 8, 2016