Year-end Planning

Lessen your tax bite with savvy year-end strategies

Jennifer Woods, special to

Death and taxes may be two of life's major certainties, but just as healthy living can help extend your life, savvy tax moves can help boost your tax savings – as long as you make them before Dec. 31.

There are no significant tax changes looming as 2015 winds down, which is good news. However, that's no reason to slack on your year-end tax planning.

Peter Dazeley | Getty Images

There are myriad strategies that can be used to lessen your tax bite, from more basic maneuvers to shave a few bucks off your tax bill to more sophisticated estate-planning tactics, which for some could amount to millions in savings.

"There are various things to look at from deferring income to accelerating deductions to managing net investment income tax," said Jordan Niefeld, a CPA and certified financial planner with Raymond James & Associates.

"Working with someone who knows what they're doing really helps," because they can tailor a strategy that fits with your overall financial plan, he said. Using someone in your state is also particularly important, as state tax laws can vary considerably.

Expense everything you possibly can, and write the checks out before the end of the year so you can get them as a deduction in 2015.
John McManus
founder of McManus & Associates

The following are some strategies that experts recommend considering before the end of the year.

Harvesting tax losses: Tax-loss harvesting involves selling securities in your portfolio at a loss to offset capitals gains. "With a turbulent market, harvesting losses is the first thing you should look at," said Peter Maniscalco, a CPA and founder of accounting firm Maniscalco & Picone.

Maniscalco added that harvesting is particularly important this year for people who own mutual funds in taxable accounts. When markets are volatile, as they have been, people get nervous and withdraw money from funds.

Stretch your tax savings with a flexible spending account

Often, the portfolio manager has to sell appreciated securities to meet those redemptions, which triggers a capital gains distribution that investors have to pay taxes on. Selling other securities in your portfolio at a loss can offset those gains, thereby lessening or eliminating that tax burden.

Accelerate deductions: An easy way to cut your tax bill is to bulk up on your deductible expenses.

"Expense everything you possibly can, and write the checks out before the end of the year so you can get them as a deduction in 2015," said John McManus, founder of trusts and estates law firm McManus & Associates. This includes deductible payments for rent, phone bills and car payments, he added.

Tax-loss harvesting

You should also pay your January 2016 mortgage bill in December so you can deduct that mortgage interest, as well. Second mortgages, home equity loans and lines of credit count, too; however, be aware that deductions are limited, depending on factors such as the total value of your mortgages. Credit card balances don't need to be paid by year-end as long as the charges were made in 2015.

Catch up on contributions: If you haven't maxed out contributions to your 401(k) or 403(b) retirement plan, consider doing so before year-end to lower your taxable income, said Niefeld at Raymond James & Associates. Additionally, if your employer offers a match – many will match your contributions dollar-for-dollar up to 4 percent or 5 percent – take advantage of it. "Not doing so is leaving free money on the table."

According to Maniscalco at Maniscalco & Picone, other things to take advantage of before the end of the year include "cafeteria plans," which let you withhold some of your pretax salary for certain expenses, and 529 plan contributions; states such as New York allow for a $10,000 deduction.

Portfolio rebalancing sounds boring, but it's a powerful investment strategy

Be benevolent: Charitable giving is a great way to boost your deductions. In some cases, you may consider gifting stocks that have appreciated, said Niefeld at Raymond James.

For example, if you bought a stock for $5 and it's now worth $10, you could donate that. You'd get credit for the full $10 even though you only paid $5, and the recipient gets the full value. "This is a savvy way to think outside the box. … You won't have to liquidate a stock, pay the tax and then donate the money."

Get your big gifts in: There are two types of gift exemptions: the annual gift exemption, which in 2015 allows you to give up to $14,000 to as many people as you want tax-free; and the lifetime exemption, which allows you to pass up to $5.43 million to heirs tax-free.

Experts suggest getting in your annual gifts before the year is over if you haven't already, and then making next year's gifts on Jan. 1 to maximize the time the money has to grow in the recipient's account.

McManus of McManus & Associates also suggests making larger gifts now (to go toward your lifetime exemption), in case the exemption amount is lowered in the future. One strategy he employs is gifting into a Grantor Retained Annuity Trust (GRAT), which effectively allows you to loan assets to loved ones, which they pay back with interest.

"It's almost as if you owned an apartment building with income, which you sold to your kids," he said. "Then they took a mortgage from you and used the [building] income to pay you back over several years.

"You get the loan paid back, and they get the property," he added. "If rates are lower, the deal is even better for those receiving the gifts."

Offset taxes on gains and income by 'harvesting'

Settle estimated taxes with an IRA: If your taxes aren't withheld through payroll (often the case with business owners) you're probably paying "estimated taxes," which are due each quarter. Not paying these on time can result in interest charges and penalties.

However, McManus said, if you catch up on your payments in the last quarter of the year, you can avoid paying any additional fees if you settle up using IRA distributions.

Regardless of the tax strategies you're considering — and there are plenty more that aren't as dependent on year-end deadlines — experts say it's critical to make sure they complement your overall financial plan and what you're trying to achieve.

— By Jennifer Woods, special to