Income Tax Service 5200 W Market St Greensboro, NC 27409 336-852-9505

Terry Hough President

November 03, 2015

Let's discuss Year End Tax Planning.

You haven't heard much from me since April. That is because there really hasn't been any important tax news until recently. Congress has been more interested in bickering and politicking than tackling tax issues.

I've been so quiet that several of you have even called to see if ElectroFile was still in business. Someone drove by and saw the grass had grown up way too far and thought we had moved out. Actually, our lawn service mows only on Saturday and they were rained out several weeks in a row. I can assure you that we are still here!

Back to tax news... Congress has not yet taken up the "tax extenders" and so several of the items that have to routinely be updated each year still remain in limbo. One of those is the deduction that teachers may take for classroom supplies up to $250, for example. I anticiapte that all of the "tax extenders" will be approved before year end.

The most important news for 2015 (and beyond) happened just last week. Congress approved and President Obama signed into law the budget bill. You will hear, or have already heard. about some of the items included. And, certainly, you will hear a few of the Republican candidates for the presidency criticizing the "theft" of social security funds. But, you won't hear much about the real surprise that was included.

This new budget bill included items that make changes to how you can apply for and draw your Social Security benefits. It is really a bit too early to accurately interpret the changes. However, it does remove some of the advantages that could be gained by timing your application, suspending benefits, drawing on spousal benefits instead of your own, etc. Basically, those advantages have been eliminated or strictly limited for future applicants (beginning 6 months from now). It will take a little while for the new rules to be issued/implemented by the Social Security Administration.

For those of you who have been working with me on selecting the appropriate Social Security benefits strategy, it is possible that we may need to rethink and modify our plan. As soon as I have full details, you will be hearing from me. At this point, I don't think any of the plans we have started or planned to implement in 2015 are affected.

Now is the time to put your year end tax planning into effect. It is already November!

Here is an updated version of one of my previous newsletters on year end steps to take...

Year-End Tax Tips to Help You Save

Although the year is almost over, you still have time to take steps that can lower your 2015 taxes. Now is a good time to prepare for the upcoming tax filing season. Taking these steps can help you save time and tax dollars. They can also help you save for retirement. Here are three year-end tips from the preparers at ElectroFile Income Tax Service for you to consider:

• Start a filing system. If you don't have a filing system for your tax records, you should start one. It can be as simple as saving receipts in a shoebox, or more complex like creating folders or spreadsheets. It's always a good idea to save tax-related receipts and records. Keeping good records now will save time and help you file a complete and accurate tax return next year. HINT: That red folder we gave you with your copy of last year's tax return is a great place to accumulate your 2015 tax records to bring to us.

• Make Charitable Contributions. If you plan to give to charity, consider donating before the year ends. That way you can claim your contribution as an itemized deduction for 2015. This includes donations you charge to a credit card by Dec. 31, even if you don't pay the bill until 2016. A gift by check also counts for 2015 as long as you mail it in December. Remember that you must give to a qualified charity to claim a tax deduction. Use the IRS Select Check tool at IRS.gov to see if an organization is qualified.

  Make sure to save your receipts. You must have a written record for all donations of money in order to claim a deduction. Special rules apply to several types of property, including clothing or household items, cars and boats.

  If you are age 70½ or over, the qualified charitable distribution allows you to make tax-free transfers from your IRAs to charity. You can give up to $100,000 per year from your IRA to an eligible charity, and exclude the amount from gross income. You can use the excluded amount to satisfy any required minimum distributions that you must otherwise receive from your IRAs in 2015. This benefit is available even if you do not itemize deductions. This special provision is set to expire at the end of 2014, but I believe it will be extended before year end.

• Contribute to Retirement Accounts. You need to contribute to your 401(k) or similar retirement plan by Dec. 31 to count for 2015. On the other hand, you have until April 15, 2016, to set up a new IRA or add money to an existing IRA and still have it count for 2015.

  The Saver's Credit, also known as the Retirement Savings Contribution Credit, helps low- and moderate-income workers in two ways. It helps people save for retirement and earn a special tax credit. Eligible workers who contribute to IRAs, 401(k)s or similar workplace retirement plans can get a tax credit on their federal tax return. The maximum credit is up to $1,000, $2,000 for married couples. Other deductions and credits may reduce or eliminate the amount you can claim.

• Determine whether take income/deductibe expense in 2015 or delay to 2016. Sometimes a taxpayer can delay or accelerate the receipt of taxable income. This may be self-employment income, IRA distributions, stock or other asset sales, etc. Receiving that income on the proper side of December 31st can have a great impact on your taxable income for 2015. For example, selling stocks that are in a loss position by December 31st can reduce your 2015 taxable income. Conversely, you might want to delay selling stocks in a gain position until after December 31st and make that part of your 2016 income.

  If you itemize your deductions, you should consider when to pay your medical bills (doctors, dentists, hospitals, and insurance premiums, etc.). Since your deductible medical expenses are reduced by 10% of your adjusted gross income, you need to time those payment to coincide with the year you will have a lower income, 2015 or 2016. For example, if you've made every effort to reduce your taxable 2015 income, you want to make every effort to pay your medical bills in 2015 to maximize that deduction. If you are convinced that you will have less income in 2016, then you may want to delay paying those medical bills until January 2016 and move that deduction into Tax Year 2016.