Plan Now to Minimize Your Taxes

There are a number of ways that many of us can us to lower our tax bills. These include Traditional IRA and 401(k) contributions, gifting, charitable contributions, income deferral, offsetting investment gains with losses and so on. Many of these techniques can be implemented late in the year when your tax situation is more clearly defined. However, some of these strategies are best implemented now.

For example, for many people, the single-best savings strategy is a 401(k) plan. It’s funded with pre-tax dollars and many employers match your contributions up to some defined limit. The 2015 maximum is $18,000 for most people. If you’re 50 or older a catch-up contribution is allowed so your maximum is $24,000. You should at least capture your employer’s matching funds, so it’s good to see where you’re at now and increase your contribution rate if needed. Spreading this out over several months should make the reduction in your take-home pay more manageable.

Traditional IRA deductions are similar. If you are married and file jointly and your adjusted gross income is less than $98,000, you can contribute $5,500 if you’re less than 50 and $6,500 if you’re 50 or older. (For other situations, IRA deductibility varies.) You can contribute for calendar year 2015 until April 15, 2016 if you like. As with a 401(k), it’s easier to spread out your contributions to even out cash flow during the year.

Many companies offer flexible spending accounts (FSA). These are pre-tax savings accounts that must be used for child care or for qualified medical expenses.   Currently, qualifying participants may be able to carry over up to $500 of unused funds to the next year (check with your employer). Since the contribution limit is $2,550, you may need to spend at least $2,050 in 2015. If you want to use these funds for elective medical procedures, eye care or other medical expenses that may have a lead time, it’s best to plan for them now rather than at the end of the year.

As usual, there are a number of important details that need to be considered here. Fortunately you don’t have to figure this out on your own. Guidepost Financial Planning is able to help you with this and all other aspects of your financial planning. Please visit our website or give us a call at 970.419.8212 so that we can discuss your financial goals in a no-charge, no-obligation initial meeting.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.