The time has arrived for most of us to reflect on our finances from the past year as we prepare for tax season. While paying taxes can feel like a routine headache, it is easy to forget that there are countless opportunities to decrease your tax bill, as long as you are well informed, and armed with the proper knowledge. There are numerous complexities, not to mention annual changes to federal and state laws to consider. All of this can affect your tax return both negatively and positively. Allen Carter, Executive Director and Portfolio Manger at Chicago’s UBS Financial Services, has laid out some of the lesser known facts about the taxes you will be paying, along with tax saving strategies that will help minimize your tax burden.
- Determine Your Capital Gains and Loss Carry Forwards – Examining your 2015 short and long term gains and losses will help ensure that you are aligning them to the greatest extent possible. You may be able to use up to $3000 of net capital losses to offset ordinary income for 2015.
- Review Your Deductions – When reviewing deductions, keep in mind that you may have the option of accelerating or deferring deductions to future years when taxes could be higher or lower. Payments of deductible expenses such as unreimbursed medical expenses and property taxes can be easily moved to accommodate timing issues.
- Consider a Roth IRA Conversion – It may make sense to convert a traditional IRA to a Roth IRA. A Roth IRA can offer significant benefits, most notably tax-free growth of assets, tax-free distributions and no required minimum distributions during the original account holder’s lifetime.
- Assess Alternative Minimum Tax (AMT) Liability – Your circumstances may reveal that you were impacted by AMT in 2015. Those living in states with high income taxes or high property taxes are more likely to be affected. If you are, your marginal federal income tax rate is 26% or 28% compared with a top marginal bracket rate of 39.6% for regular tax. If you expect to be subject to AMT in 2015 but not subject to AMT in 2016, consider accelerating ordinary and short-term capital gain income in order to take advantage of the lower AMT tax rate.
- Know the Same Sex Couple State Changes – Since the US Supreme Court ruled that same-sex couples have a fundamental right to marry and to have their marriages recognized in every state, states that previously banned gay marriage didn’t allow same sex couples file jointly, even though they were allowed to for federal taxes. Now, same sex married couples can file jointly for both federal and state taxes. Furthermore, couples that filed state taxes separately as individuals may be candidates to have the previous three years amended to properly reflect their marital status.
- Learn About Your State – In addition to being aware of changes in federal tax law, it is crucial to be aware of changes in state tax laws that may affect your individual, fiduciary and corporate income tax situation for 2015. For example, Connecticut increased the personal income tax for high income earners for a maximum martingale rate of 6.7% to a maximum marginal rate if 6.99%, and in Hawaii, the tax exemption now matches the federal estate tax exemption at $5,430,000. It is crucial to stay informed, so that you can positively affect your return.
These tax tips and many more, should be reviewed and considered before paying the IRS. Often times we just want to “get it done,” failing to learn ways in which we can decrease our tax bill. Most importantly, arm yourself with knowledge, or seek the advice of a professional financial representative to help guide you.
For more information, please contact:
Allen G. Carter, Jr., CRPC ©
Executive Director/Portfolio Manager
UBS Financial Services, Inc.
One North Wacker Drive, 26th Floor
Chicago, Illinois 60606