Tax season may seem far way, but it’s never too early to plan ahead. BlackEnterprise.com chatted with J.B. Bryan, president of J.B. Bryan Financial Group Inc., an independent firm with securities offered through Summit Brokerage Services Inc., to talk tax-planning.
BlackEnterprise.com: What should taxpayers do first?
J.B. Bryan: If it’s economically feasible, consider asking your employer to hold your year-end bonus or end-of-the-year commission check until the first of 2015 to delay your taxes on that income until next year. But if you expect your income to be higher in 2015, you may come out ahead by maximizing your income for 2014.
What tips do you have for retirees?
If you are retired and you know that 2015 will show more taxable income, it’s time to consider taking your IRA distributions now in 2014, but you must save it to cover the 2015 expenses that are down the road.
How can taxpayers reduce their taxable income?
Increase your pre-tax 401(k) contributions–that includes all other work retirement plan contributions–by increasing your 2014 pre-tax contributions. This will reduce your 2014 taxable income. Many employer plans allow for catch-up provisions if you are at least age 50, but that’s only if you have already maximized the regular salary deferral allowed.
What about Social Security?
If you’re worried about paying taxes on your Social Security, try to limit the amount of money you take from your traditional IRA this year. You should know that most Roth IRA distributions are not included as income for purposes of determining whether Social Security benefits are taxable.
Explain the process of crowding deductions.
In order to itemize your deductions you may consider crowding 2015 expenses into this year in order to exceed the applicable deduction floor. For example, schedule and pay for dental work or even eye appointments this year if it will place you over the itemized deduction threshold for medical expenses. Talk with your tax professional for additional details. Pay 2015 professional dues, subscriptions, and investment management fees in 2014 if it could help you surpass the threshold for miscellaneous expenses.
Any tips for charitable giving?
Instead of making cash charitable contributions, consider donating appreciated securities (stocks) that you’ve had for more than a year. Generally, you can write off the full fair market value of the donated securities. Talk to your tax adviser about any limitations and restrictions. This also helps you avoid the capital gains tax that would apply if you sold them first and then donated the proceeds
What about mutual funds and dividends?
It’s possible to invest in a mutual fund shortly before its ex-dividend date. You may find that the recently declared dividend will be credited and taxable to you for the current tax year. Consider delaying your purchase until after the ex-dividend date. Note that an investor only needs to own the stock or mutual fund for one day (the record date) to be entitled to receive the dividend payment. If the investor buys before the ex-dividend date, and sells on the ex-dividend date or after, the investor will receive the dividend payment.
BlackEnterprise.com: Any other tips?
Consider hiring a tax preparer as early as possible to plan for next year. A good tax preparer can help you discover more opportunities for tax savings that you may not find on your own.