There are several ways taxpayers can reduce their 2015 personal income tax bill as the year comes to a close. More opportunities for tax savings are available for taxpayers that start planning now, rather than those who wait until December 31st, so take this time to assess your individual situation and enjoy substantial savings.

1. 4 tips for individuals

1. Pay college tuition bills early. 
2. Think about pre-paying tuition bills that are due in early 2016 if you qualify for the Lifetime Learning or American Opportunity credit but haven’t incurred enough expenses to max out the credit for 2015. You are able to claim a 2015 credit for prepaying tuition for academic sessions that begin in January through March of 2016.
   • For Lifetime Learning credit qualifiers, the maximum amount you can claim is $2,000 per tax return, but the credit is phased out if your 2015 modified adjusted gross income (MAGI) is $55,000 to $65,000 for unmarried individuals, and $110,000-$130,000 for married joint filers.
   • For American Opportunity credit qualifiers, the maximum amount you can claim is $2,500 per student, but it is also phased out if your 2015 MAGI ranges from $80,000 to $90,000 for unmarried taxpayers, and $160,000-$180,000 for married joint filers.
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3. 2. Consider paying deductible expenses earlier than usual. Do you itemize deductions? If so, you can generate higher 2015 write-offs if you pay some deductible expenses before year-end. If you expect to be in the same tax bracket as last year, part of your income tax liability will be deferred until next year, and if you end up in a lower bracket for 2016, you will reduce your liability for the long run. Some easy deductible expenses that you can pay ahead of time include:
   • Your mortgage bill on your main residence or vacation home due on January 1st of next year is an easy deductible expense to pay ahead of time, and will give you 13 months’ worth of deductible interest in 2015 if you did not pay ahead of time last year.
   • Expenses subject to deduction floors- You can deduct expenses subject to deduction floors based on a portion of your adjusted gross income (AGI) if they are above the “floor” in question. If you’ve exceeded the floor year-to-date, for medical costs (10% floor for most) or miscellaneous deductions (2% floor), for example, think about accelerating additional costs into the last couple months of 2015 to be able to deduct the expenses.
   • State and local income and property taxes.
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4. 3. Defer some taxable income into next year. If you think you’ll be in the same or lower tax bracket for 2016, it might be a good idea to defer some of your taxable income into next year if possible. This will allow you to, in some cases, postpone tax liability until next year, and take more advantage of tax breaks (like the higher education tax credit, for example) in alternating years.
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6. 4. Gift assets to relatives. For taxpayers in the 10% or 15% rate brackets, the federal income tax rate on long-term capital gains and qualified dividends is 0% for 2015. If you have relatives in lower tax brackets, consider giving them appreciated stock or mutual fund shares if your personal tax bracket is too high to claim the 0% rate. By doing so, you can allow them to sell the shares and pay the 0% rate on the long-term gains that result. Remember that the annual gift tax exclusion is $14,000 in 2015 ($28,000 for married couples).

Though it may be hard to believe,December has officially arrived!

  It is helpful to start thinking about what actions can be taken to reduce your tax bill for 2015; there may be opportunities so substantially reduce what you owe!

In July, the Senate Finance Committee passed a tax extenders bill that extends more than 50 tax breaks for the next two years.  Some of the more popular provisions extended are the $250 above-the-line tax deduction for educators, the deduction for mortgage insurance premiums and the-above-the line deduction for higher education expenses, to name a few. Stay tuned for updates on when/if these extenders officially become permanent.

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2. 1. Capital Gains and Losses – To help minimize your net capital gains tax and maximize deductible capital losses, discuss the timing of gain/loss recognition with your tax advisor or your investment broker.
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4. 2. Mutual Fund Distributions – Being that mutual fund dividends are typically taxed as ordinary income, think about redeeming them in taxable accounts before any year-end dividends are distributed.
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6. 3. Charitable Contributions – This is the best time to give to charity – not only will you be benefiting those less fortunate around the holidays, but your donations can provide you with valuable tax deductions.  Discuss the various charitable giving options with your tax advisor in order to maximize this deduction.
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8. 4. Retirement Account Contributions – For 2015, individuals age 49 and under are eligible to contribute up to $18,000 to a 401(k) plan and up to $5,500 to an IRA (traditional or ROTH).  Individuals over age 50 are able to “catch up” and contribute an additional $6,000 to a 401(k) plan and an additional $1,000 to an IRA.  Discuss the deductibility of IRA contributions and income limitations with your tax advisor before making this contribution.  If you haven’t already contributed to a retirement plan for 2015, now is a great time to consider it to ensure any contributions are made by year end.
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10. 5. Energy Tax Incentives – thinking of getting around to some home improvements before year-end?  There is a tax credit available if you use energy efficient materials.  For 2015, this credit amount is $500 (subject to lifetime limits) and no more than $200 can be allocated to exterior windows and skylights. 
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12. 6. Gift and Estate Taxes – There are opportunities to give up to $14,000 per year, per recipient tax-free without using any of your lifetime gift and estate tax exemptions under the annual exclusion.

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