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By Eve Kaplan, CFP®

We’re now in the final weeks of the countdown to 2015. Follow these tips in the next few weeks and  you’ll lock in some tax savings and/or avoid additional taxes owed.

Do these before Dec 31, 2014:

  1. Do you have a 2nd home and two mortgages? Don’t forget to deduct mortgage interest on both your primary home and a 2nd The maximum allowable interest deduction on mortgages is $1 million per year.
  2. Smart charitable giving tip #1. Keep records of all charitable giving, including noncash charitable deductions. Consider front-loading some of your 2015 charitable giving before Dec 31, 2014 if your taxable income this year is expected to be higher than 2015. (note: have a tax projection run to see the effect on 2014 vs. 2015 if you’re considering a large charitable gift). .
  3. Smart charitable giving tip #2: Consider gifting highly appreciated investments instead of cash. If your $100 initial share purchase is worth $500, your charitable deduction is a full $500 and you don’t have to pay any capital gains tax. This kind of a gift is a win/win for the donor and the charitable recipient.
  4. Rotate a dependent deduction if you and your siblings are supporting a parent.  If your combined support exceeds 50% of the living expenses of e.g. your parent, rotate the deduction amongst you and your siblings.
  5. Tax deductible interest on education loans. If you’re paying down your child’s college loan and your income is higher than your child’s income, don’t forget to deduct the interest on your tax return.
  6. Avoid making some investment purchases in December. Mutual funds distribute short- and long-term capital gains in December; buying a new position means you may end up paying long- and short-term gains on something you’ve held a mere few days or weeks.

Ways to reduce taxes beyond Dec 31, 2014:

  1. Consider tax loss harvesting positions in taxable accounts if they can offset realized gains elsewhere. After selling positions at a loss you can avoid “wash sale” penalties if you purchase a similar (but not identical) investment within 30 days. For example, you want to retain your exposure to e.g. emerging markets so you sell Position A at a loss, purchase Position B (similar but not identical to Position A).
  2. Defer as much income as you can. Always defer income in a defined contribution plan (e.g. 401(k)) at least up to your employer match. If you can, defer the maximum allowed in order to postpone tax on some of your earned income. Consult with a financial planner to see if/when it makes sense to save in a Roth IRA instead of a Traditional tax-deductible IRA.
  3. Don’t forget IRAs for non-working spouses. If your combined joint MAGI (modified adjusted gross income) is $181,000 or less in 2014, your non-working spouse can fully deduct an IRA of $5,500/year ($6,500 if you’re over age 50). The MAGI limit increases to $183,000 in 2015. You have until April 15, 2015 to defer in a spousal IRA for the 2014 tax year.
  4. Asset location improves performance and reduces taxes. Concentrate bond investments in tax-deferred accounts and concentrate tax-friendly municipal bonds in taxable accounts. If possible, concentrate more stock positions in taxable accounts to be able to harvest losses and pay lower capital gains rates than the ordinary income tax rates levied on tax-deferred accounts when money is withdrawn. Most individuals minimize taxes by drawing down investment assets in this order: taxable (first), tax-deferred (second) and Roth IRAs (third).

Finally, a word about something near and dear to many American consumer hearts: extravagant holiday gifts.  Studies repeatedly show that more than half of holiday gifts aren’t liked or used by the recipient! Instead of giving “things,” consider gifts of your time and effort toward those you care about.  A great gift idea for uncles, aunts and grandparents is an annual contribution to a 529 College Plan for anyone headed to college. I frequently recommend the State of Utah plan to my clients because it’s “direct” (no advisor commissions), low cost and it offers excellent investment alternatives.

Happy Chanuka, Merry Christmas and a Festive Kwanzaa!


Copyright (C) 2014. Eve Kaplan. All Rights Reserved