New tax laws put higher income earners at risk of having to pay more taxes. If your income is above $250,000, you could face higher tax bills because of the new ACA law, as well as several others passed by Congress recently.
However, you can lower what you will inevitably owe to the IRS by taking several proactive steps now. These tactics should be on your checklist when you aim to save money on your 2015 taxes.
Tax Loss Harvesting
You well know that investing in the stock market can be a great way to add to your income. However, when you want to avoid paying higher taxes because of your wise investments, you should make use of tax loss harvesting.
Tax loss harvesting involves selling stocks that have lowered in value and then using the loss to cover capital gains in your portfolio. You can cover gains up to $3000 per tax year. Moreover, remaining losses can rollover from year to year, effectively keeping your taxes on capital gains as low as possible.
Sell Stocks before End of Year
If you plan to make use of tax loss harvesting, it is important that you do so before the end of the year. By selling now, you beat the rush of other investors and take advantage of losses occurring in the market today. Some of the losses can be found in:
- European equities
- Emerging-market stocks
- Commodities
- Natural resource funds
- Energy sectors
If you have stock in any of these industries, you would do well to sell them and then buy stocks similar to them. It is important that you avoid buying again the stocks that you sell if you want to use the tax loss harvesting tactic to save money on your 2015 taxes. The IRS requires that you wait 30 days or more to rebuy stocks you previously sold.
Charitable Donations
Charitable donations have long been valued as a great resource for saving money on your taxes. Many individuals and businesses use this tactic to support charities that are important to them while reducing their tax bills at the same time.
If you are unsure of what charities to donate to at this time, you can still use the charitable donation credit by donating to a donor-advised fund, or DAF. As your DAF contributions grow, you can save money on your taxes and decide later to what charities you want to give that money. You can also ask your financial advisor about what charities you can donate to right now to help you offset a larger tax bill next year.
Retirement Contributions
Along with giving to charity, you can give to yourself and your future by contributing to your retirement plan. The IRS exempts retirement contributions from being taxed, thereby sparing you from a higher tax bill.
Moreover, the IRS allots you up to $18,000 in tax-exempt retirement contributions, and $6000 more if you are age 50 or older. These savings can total up to $24,000 going into your retirement account without you being taxed for it. You get to keep your money and use it later on in your life while avoiding paying a higher tax bill to the government.
These four tactics can help you save big on your 2015 taxes. As new tax laws target the incomes of higher earners, you may want to safeguard your money and avoid a large tax obligation when you file next year.
By using these strategies, you can make good use of your money and even contribute to worthwhile charities or your own retirement. You likewise can find relief from a tax burden that could seriously dent your budget during next year's tax season.
