For most people, the end of December is called “the holidays.” For lawyers, accountants and other financial types, however, it’s called “year-end.”
While most of us celebrate with turkey, eggnog, ugly sweaters and football — often all at once — these folks are working late hours trying to save their clients as much money in taxes as possible before the ball drops in Times Square.
Thanks to the continuing political gridlock in Washington, 2015 wasn’t a big year for major changes in the tax law. Given the presidential election next year, odds are 2016 won’t be a big year for tax law changes either. After the election, though, look for some dramatic changes, especially if the Democrats keep the White House and regain control of the Senate.
For now, the basic year-end advice still applies: defer the recognition of taxable income into 2016, and accelerate deductible expenses into 2015. Wait until January to send out invoices for work performed in December, and prepay in December expenses you know you will incur in January. Here are some other tips:
Avoid the Obamacare Penalties. Under Obamacare, individuals who choose not to get health insurance through government exchanges, whether on their own or via their employers, have to pay an additional tax.
If you did not have health insurance coverage in 2015, you’ll have to pay the higher of:
— 2 percent of your yearly income above the tax-filing threshold (generally about $10,150) up to a maximum cost of the national average premium to purchase a “Bronze Plan” from the federal healthcare exchange; or
— $695 per person ($347.50 per child under 18). The maximum penalty per family using this method is $2,085.
These costs have more than tripled from last year, when the penalty was $95 per person or 1 percent of household income.
New Filing Deadlines for 2016 Returns. Partnerships, LLCs taxed as partnerships and S corporations, which used to file their federal tax returns on April 15 of each year, now have to file them on March 15. Regular, or “C” corporations, which used to file their federal tax returns on March 15 (if they use a calendar year), now have to file them on April 15. The deadlines for 2015 returns are unchanged.
Contribute to Your Retirement Plan. You can still deduct contributions to an IRA, 401(k) or other retirement plan, even if the contribution isn’t made until just before you file your 2015 tax return sometime in 2016. Heck, you can even set up a new retirement plan after Dec. 31 and still deduct your contribution in 2015 as long as you make the contribution before you file your 2015 return.
If you are over age 70-1/2 and are forced to take taxable distributions from your IRA, consider donating up to $100,000 of your IRA funds to charity. The transfer will count toward your “required minimum distribution” for the year, and will not be included in your income, as other distributions will.
Hold On To Your Stock, Unless You Lost Money. Short-term and long-term capital gains rates took a big jump last year because of the 3.8 percent “net investment income tax” that was part of Obamacare. To avoid the tax, hold onto any stock that appreciated in value during 2015.
If you lost money in the stock market, consider “loss harvesting” — selling your “losing” stocks before Dec. 31 to realize losses. You can then use those losses to offset any taxable gains you have realized during the year. Losses offset gains dollar for dollar. And if your losses are more than your gains, you can use up to $3,000 of excess loss to wipe out other income.
If you have more than $3,000 in excess loss, it can be carried over to the next year. You can use it then to offset any 2015 gains, plus up to $3,000 of other income. You can carry over losses year after year for as long as you live.
Prepare for the 2016 Election. Predicting the outcome of any election is a fool’s errand. But here’s one fairly safe forecast: whoever wins the White House next year, lowering taxes for upper-income Americans won’t be anyone’s priority. Start planning now for post-election increases in tax rates, and the gradual elimination or phasing out of some popular deductions for people in higher-income brackets.
The more a tax deduction or credit is perceived as furthering a “positive” social or environmental goal, the more likely it will survive any post-election tax reform intact. So make tons of charitable contributions, and look into energy tax credits for solar panels and other “alternative energy” or “sustainable energy” home improvements. Consider buying an electric car. And moving to a state with no income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington, or Wyoming).
Don’t Obsess. Chances are there isn’t much you can do between now and Dec. 31 to make a dramatic change in your 2015 tax liability. Enjoy your holidays. Worry about taxes next year.