Welcome to the last week of 2015.
The end of the calendar year is important not just for your New Year's Eve party planning purposes, but also because when it comes to most tax moves, Dec. 31 is a critical and firm deadline.
So with the soon-to-be-old year rapidly winding down, here are 10 tax moves to make by Dec. 31.
1. Take your retirement account distribution.
Most owners of tax-deferred retirement accounts who are age 70½ or older must take a specific amount out of their nest eggs by the end of the year or face stiff penalties. This applies to traditional IRAs and 401(k) and similar workplace accounts.
If you just celebrated this tax-related half-year birthday this year, you can push the required minimum distribution, or RMD, until next April 1. But remember, that will mean you'll have to make two RMDs next year. So do some quick calculations and if it's better to take the money this year, get it out ASAP.
2. Donate your RMD.
If you must take an RMD but don't need the money to live on, you can avoid having it count as taxable income and donate to your favorite Internal Revenue Service qualified charity. The key here is that the donated distribution goes directly to the charity. You can't take it out and then give it to the nonprofit. If you want to donate your RMD, call your account manager and/or the charity now so that the direct donation can meet the Dec. 31 deadline.
3. Get married … or divorced.
Your filing status depends on your marital status at the end of the year. If being single again or becoming a spouse will make a material difference to your current year tax bill, the change needs to happen by Dec. 31. If doesn't matter if you are single for from Jan. 1 through Dec. 30, if you say "I do" on the last day of the year, the tax law considers you married for the whole 365. The same applies to dissolved vows.
Admittedly, it's much easier to become husband and wife or, thanks to this year's U.S. Supreme Court's ruling making same-sex marriage legal in all states, wife and wife or husband and husband on such short notice. But if your divorce is in the works and the final decree can be accelerated, then you might want to talk to your attorney ASAP.
4. Have a baby.
While some folks try to delay delivery of their bundle of joy in order to rake in New Year's baby prizes, it's better from the tax perspective to celebrate your son's or daughter's birth by Dec. 31. As with your marital status, when the child is born by the end of the tax year, you get to claim your new baby as a deduction for the full tax year, even before you've had to change one diaper. That extra exemption and other child-related tax breaks are great baby gifts from Uncle Sam.
5. Zero out your FSA
This workplace benefit is a great way to shave a few dollars off your tax bill and pay for medical costs you'll incur anyway. But in some cases, you must spend the amount in your flexible spending account, aka FSA, by your benefits year's end, which usually is Dec. 31, or forfeit the money. So check out your FSA balance and if you're in a use-it-or-lose-it situation, get to the drugstore to spend it down in the next few days.
6. Make last-minute bunching moves.
If you itemize, take a look at your miscellaneous expenses. These can help reduce your taxable income, but only if they are more than 2 percent of your adjusted gross income. If you're close to that deduction threshold, look at some allowable expenses you planned to make in January and bunch them into this last week instead.
The same approach applies to the 10 percent of AGI required write off medical expenses.
7. Sell some losing stocks.
If you're facing a tax bill on capital gains, you can offset that by selling some holdings that didn't do as well. The losing assets can offset your gains completely. If you have more losses than gains, you can use up to $3,000 of them to reduce your ordinary income.
8. Buy for your business.
Whether it's a piece of equipment you put off buying to see if Congress would approve the expanded Sect. 179 limit and bonus depreciation (it did, as part of the tax extenders and omnibus spending bills), or just run-of-the-mill office supplies, make those purchases by year's end to count them against your 2015 taxes.
Also consider investing in not only your business, but also yourself by setting up a self-employed retirement plan. Some account types require you establish them by Dec. 31 even if you don't put in any money for the current tax year until next year.
9. Donate to charity.
Yes, you've been reading about this a lot of late here on the ol' blog. But in order to take this itemized deduction on your coming tax filing, you must make your charitable contributions — either cash or household goods or other more uncommon contributions, such as appreciated assets — by Dec. 31.
10. Give to family and friends.
If you have a large estate, you might want to look into maxing out your yearly federal gift-tax exemption. This amount is adjusted annually for inflation; it's $14,000 for 2015. Here you can give away some of your money while you're still around to get the "thank yous" and reduce the amount of property that might be subject to the federal estate tax.
You have until the end of the year to give up to the maximum exemption amount to as many people as you want. If you're married, both you and your spouse this year can give separate $14,000 gifts, even to the same person.
Some folks think these gifts are restricted to family members. Not so. You can give these financial gifts to anyone — family, friends, coworkers, tax bloggers.
So if you're looking for another gift recipient for this tax year, drop me a line.
