9 Things To Do Before Year End 2015

  1. Give gifts to charity.  To get a tax break for any gifts you give (cash, stock, etc), those gifts have to be given by Dec 31 to qualified charitable organizations.

    The IRS provides a tool for checking on this:  <https://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check>

    For a contribution of cash, check or other monetary gift, you need to keep a record of the contribution indicating the name of the charity, the amount given, and the date.  For any contribution of $250 or more, the organization needs to give you a written acknowledgement indicating those things.

    For certain non-cash contributions, there’s also an IRS form 8283 which needs to be kept and a copy included with your tax filing if the gift was more than $500.  If you give non-cash property worth more than $5000, you will need a qualified appraisal, too.  Special rules apply to gifts of certain types of properties (i.e., cars, inventory, appreciated stock, etc).

    Additionally, we highly recommend the use of Donor-Advised Funds for various reasons, including maximizing the benefit of timing your gifts and especially for efficiently donating appreciated assets such as stock.  Please see this article from a couple of years ago for more information about them:  <https://meyersmoney.wordpress.com/2013/11/20/a-powerful-tool-for-charitable-gifts/>

    These issues may be quite complex, especially if you’re giving something other than cash.  Please make sure to consult with a professional if you have any questions!

  2. Give gifts to your kids/family/etc.  The annual exclusion (from gift and estate taxes) is currently $14,000 per giver per recipient.  This means that a married couple could give $28,000 to each of their kids (and potentially another $28,000 to each kid’s spouse, each grandkid, etc).

    This is a way to get assets out of one’s name and therefore out of one’s future estate (keeping those assets from being taxed under estate taxes which currently can be 40%).  With the current fairly high (historically) estate tax exclusion of over $5,000,000 per person, this is not as urgent an issue as it has been in even the fairly recent past — but that large exclusion is only as permanent as Congress choosing not to change it again — and it’s been changed numerous times in the last few years.

  3. Max out your retirement accounts.  You may have payroll deductions of up to $18,000 for contributions to an employer-based plan (401k, 403b, etc), and those contributions may be Roth (post-tax, but the future growth may not be taxed) or traditional (pre-tax – you get a tax break now, but eventually, when the money comes out it’ll be taxed). If you’ve turned 50 this year (or earlier!), you may make an additional “catch-up” contribution of up to $6000.  In a 401k or other employer-based plan need you typically need to make those contribution elections in time for it to come out of payroll before the end of the year.

    If you’re self-employed, consider setting up one of a variety of self-employed retirement savings plans.  A “solo” 401k – a special variation of the 401k for self-employed folks (who have no other employees other than, at most, a spouse) – needs to be set up by year end to be valid for this year.  Contributions don’t need to go in until you do your taxes, but the plan and accounts need to be in place now.  (If you’re an s-corp, employee contributions need to go in by the last payroll of the year, too, but employer profit-sharing contributions may be delayed).

    IRA and Roth IRAs may be funded for 2015 as late as when you file your taxes, so those are not under pressure for year-end.

    Every year that goes by without maxing out contributions to retirement plans is an opportunity lost forever.

  4. Take some retirement distributions.  If you or your spouse will be over 70-1/2 by year-end, Required Minimum Distributions (RMDs) need to be taken from certain retirement accounts (IRAs, employer plans such as 401k, 403b, etc if you’re no longer employed there or if you are the owner).  Naturally, at that age, you’re permitted to take distributions of as much as you’d like from your accounts (which will often be subject to income taxes).  But you do have to take at least enough to satisfy the requirements.

    Additionally, if you’ve inherited a retirement plan (especially from someone other than your spouse), no matter how old or young you are, you may be required to take RMD distributions, too.  Inherited accounts use a different RMD computation and work under some fairly complex rules, but nevertheless, the distributions are, indeed, required.

    Note that the tax penalties for not having satisfied RMD requirements are enormous – 50% of the amount which was supposed to have come out but didn’t — in addition to income taxes which may be due.  So don’t miss these.  

  5. Pay some taxes.  Depending on your overall financial situation, there may be advantages to accelerating certain tax payments and getting them in before year end – in particular, estimated state income taxes (due in California, for example, by Jan 15) may be paid before year-end if you want to deduct that payment on your federal taxes for 2015.  Similarly, some folks may want to accelerate one of their property tax payments the same way.  Note that this may not help if you fall into AMT, or if you’re not itemizing (or alternating years of itemizing and taking the standard deduction).  We strongly recommend consulting with a tax professional (accountant, enrolled agent) and running the numbers on this.

  6. Take some losses.  We regularly review taxable accounts for “tax loss harvesting” opportunities.  When investments are sold at a loss, that capital loss may be used to offset taxable capital gains, and if those losses exceed all the gains realized in a year, some of those losses may even offset ordinary taxable income.  And if there are still more losses than that — they don’t expire — they carry forward and get used next year or the year after until they are used up.  Obviously, losses are unfortunate and we’d all rather have gains, but if you have any, why not make the best of those losses and use them to improve overall tax efficiency.

    Note that if you sell an investment at a loss, you cannot re-invest in the same thing immediately — that’s called a “wash sale” — but if you want to remain generally invested, there’s nothing stopping you from selling something at a loss and buying something similar.  Or, if you really want the same investment, waiting out the “wash sale period” and buying it back again after 61 days.

  7. Invest in your business.  Many types of business spending may be either deducted immediately against business income — or at least starting the clock on depreciation and getting some partial deduction.  If you need office supplies – buy them.  Look through your general business spending and if there are some expenses coming up that you can pull into the current year — especially if it’s been a profitable year — it may make sense to accelerate those purchases into this year rather than next.

  8. Start getting organized.  Okay, this could apply any time of the year, but at year end, while you’re thinking about all those other things – taxes, retirement savings, charitable gifts, etc – this is an especially good time to start getting those files in order.  Tax season will start very soon — so get those receipts, papers, folders ready.  If you haven’t already started your 2015 tax-season folders – now’s a great time to do it.  Set aside a folder for all the 1099s, W-2s, etc.  Set aside another one for all charitable gift acknowledgements, receipts, etc.  Set aside another for year-end statements from all your investment accounts.  When all those papers start to come in, put them right into those folders you’ll have prepared and you’ll have a huge advantage when the time comes to sit down and dive in.

  9. Schedule some time with your financial advisor.  If any of those year-end issues above affect you – or if you’re not sure if they do or not — contact your advisor now.  Year-end is an especially busy time and the sooner you can schedule time with your professional, the better.  If you’ve got a good handle on all those year-end issues, it may still make sense to schedule time with your advisor for sometime in Jan to start preparing for taxes and other deadlines which start coming all-too-soon after year-end!


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