By Jill Schlesinger
Tribune Content Agency
Now what you've survived the holidays, remember that just a few hours spent reviewing your financial life may help boost your bottom line - and put a dent in your holiday shopping bills! Here are eight ideas to consider, which could minimize taxes now that we have entered a new year.
1. Sell winners in taxable accounts. In 2014 married tax filers with taxable income up to $73,800 (singles up to $36,900) still have a zero percent tax rate on long-term capital gains and qualified dividends. If you are at the zero percent capital gains rate now, but expect your income to be higher later, you may want to realize capital gains today at the lower rate. Your taxable income includes the gain, so make sure that you factor that in when you make your decision.
2. Sell losers. If you have investment losses in a taxable account, now is the time to use those losers to your advantage. You can sell losing positions to offset gains that you have taken previously in the year, to minimize your tax hit. If you have more losses than gains, you can deduct up to $3,000 of losses against ordinary income. This is particularly useful, since your ordinary income tax rate is higher than your capital gains tax rate. If you have more than $3,000 of losses, you can carry over that amount to future years.
3. Avoid getting soaked by a wash sale. If you are starting to clean up your non-retirement accounts to take losses, don't get soaked by the "Wash Sale" rule. The IRS won't let you deduct a loss if you buy a "substantially identical" investment within 30 days, what's known as a wash sale. To avoid the wash sale, wait 31 days and repurchase the stock or fund you sold, or replace the security with something that is close, but not the same as the one you sold...hopefully something cheaper, like an index fund.
4. Bunch itemized deductions. Many expenses can be deducted only if they exceed a certain percentage of your adjusted gross income (AGI). Bunching itemized deductible expenses into one year can help you exceed these the 2 percent AGI floor for miscellaneous expenses. To exceed bunch professional fees like legal advice and tax planning, and unreimbursed business expenses such as travel and vehicle costs.
5. Mail your checks for deductible purchases. Procrastinator alert! If you're the type of person who waits until the last minute for everything, take note: To qualify for write-offs of charitable contributions and business expenses, your payments must be postmarked by midnight December 31. The IRS says just writing "December 31" on the check does not automatically qualify you for a deduction; and pledges aren't deductible until paid. Donations made with a credit card are deductible as of the date the account is charged.
6. Fully fund your college savings 529 plan. If you find yourself with a little extra year-end cash, or grandma asks what she can do for your kids, consider a 529 plan. Money saved in these programs grows tax-free and withdrawals used to pay for college sidestep taxes, too. You can invest up to $14,000 in 2014 without incurring a federal gift tax and many states offer state tax deductions for the contributions.
7. Give appreciated stock or fund shares to charity. Get in the holiday spirit, with the help of Uncle Sam. One way to lower your tax bill in April is to donate appreciated securities, like stocks, bonds or mutual funds, to a charity. If you itemize deductions, you'll write off the current market value (not just what you paid for them) and escape taxes on the accumulated gains. The low cost basis does not impact the receiving charity, as long as it is a tax-exempt organization.
8. Use your gift tax exclusion. You can give up to $14,000 to as many people as you wish in 2014, free of gift or estate tax. If you combine gifts with a spouse, you can give up to $28,000 per beneficiary, per year.
Jill Schlesinger, CFP, is the Emmy-nominated CBS News Business Analyst. A former options trader and CIO of an investment advisory firm, Jill covers the economy, markets, investing and anything else with a dollar sign on TV, radio (including her nationally syndicated radio show), the web and her blog, "Jill on Money." She welcomes comments and questions at firstname.lastname@example.org. Check her website at www.jillonmoney.com.
This column was printed in the January 11, 2015 - January 24, 2015 edition