2015 Tax Planning for Individuals

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This time of year is easy to lose sight of long-term financial goals and get caught up in the early stages of the tax season. Few people think 12 months out for their taxes and this can prove to be detrimental to the following year’s tax burden. Here are some things to consider 12 or 18 months out. Preparing in advance can help you maximize your write-offs while minimizing the amount of Federal and State taxes you owe.

  1. Meet with an accountant twice per year not just during tax season!

If you don’t have a personal accountant, find one. Here are some questions for interviewing accountants. If you already have an accountant, it is imperative to schedule consultations with them at least twice per year; once at tax time and another after tax season. After tax season, you and your personal accountant can review opportunities to lower the following year’s tax burden through credits, write-offs and other methods. Annual changes in the tax code can affect your strategy for investing, real estate, retirement, home improvement upgrades and much more.

  1. Evaluate the advantages/disadvantages of tax-exempt investments

Did you know that “master limited partnerships” that’s primary asset is energy focused may be tax-exempt for a couple of years? Section 529 plans are another option for some investors as are some municipal bonds. These investments and more are proactive ways of managing your 2015 tax bill in 2016.

  1. Consider Energy Credits

If you are considering remodeling your home to include “green” energy options – solar, geothermal, fuel cells or others, you may be able to deduct up to 30% of the expenditure, while lowering your energy bills. As the tax codes continually change, it is essential to regularly meet with your accountant to determine the best credits available to you.

  1. Analyze the advantages/disadvantages of long-term capital gains vs. short-term capital gains

Tax codes treat short-term capital gains and long-term capital gains very differently. For example, short-term capital gains are typically taxed at the same rate as your personal income. This can vary widely from 10% to nearly 40%. Assets you hold less than 12 months that result in a profit, are considered short-term capital gains. On the other hand, a long-term capital gain is typically capped at 20% and may be as low as 0% in some cases. By speaking with your accountant, you can set your investment strategies to take the best advantage of long-term capital gains.

  1. 1031 Exchanges

A 1031 exchange is a way to defer capital gain taxes after the sale of a residential investment or commercial investment property. It is important to understand the difference between a full-tax deferral and a partial-tax deferral. In the full-tax deferral, you must reinvest 100% of the proceeds in a “like-kind” property within a specific timeframe. Consult with your accountant in order to maximize the 1031 exchange and other income deferral vehicles.

  1. Maximize contributions of 401(k), 403(b), 529 plans, Health Savings Accounts

By maximizing contributions to these types of accounts, you can lower your tax burden. When you contribute to a particular account, you can deduct that amount from your income. In essence, you can fund your retirement and other savings accounts with “pretax” dollars. This lowers the amount of income that you have to pay taxes on. While this is appealing for many individuals, a Roth 401(k) may be a better long-term strategy for some. It in essence works in reverse of the traditional 401(k) that basically defers taxes until withdrawal. With a Roth, you pay taxes on current contributions but you are not taxed upon withdrawal.

To build wealth and plan for retirement, you need the most accurate information about changes in tax codes in order to maximize your hard-earned money. Speak with your accountant now about how you can minimize this year’s tax burden.

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