Finances

Four Timely Strategies to Reduce Your Tax Bill

By Adam Cmejla,
President of Integrated Planning & Wealth Management, LLC

March 9, 2016

SYNOPSIS

The annual deadline for filing taxes is fast approaching. Here are four tips to reduce your 2015 tax bill.

ACTION POINTS

MAKE SURE YOU HAVE ALL YOUR 1099’S. If you have various investments at various brokerage firms, make sure you have received all of your 1099’s.

MAKE TRADITIONAL IRA CONTRIBUTIONS. You can contribute up to $5,500 per taxpayer ($6,500 if you are over age 50) per year into a Traditional IRA.

MAKE SEP IRA CONTRIBUTIONS. As a business owner, you can also make SEP IRA contributions up until you file your taxes. Keep in mind the contributions must be employer-only, and know the limits of the contributions.

SCRUTINIZE YOUR ITEMIZED DEDUCTIONS. Spending time pouring over your Schedule A (Itemized Deductions) can yield significant tax savings.

April 15 is around the corner, and you probably spent the month of February reconciling the books, gathering all of your W-2’s, 1099’s, 1098’s, and every other tax form that is sent out during the first 6-8 weeks of the year. While most tax savings strategies are calendar-based, and December 31, 2015, has come and gone, there are still some last-minute strategies to evaluate that can potentially save you money when April 15 rolls around.

Make Sure You Have All Your 1099’s

If you have various investments at various brokerage firms, make sure you have received all of your 1099’s. While most of our clients have received their 1099’s from our custodian, TD Ameritrade, we have a couple of clients that have certain investments that take longer to report year-end tax information, thus delaying the disclosure of tax information for account holders. While this is completely legal, and not a cause for concern, having to amend an already-filed return is not high on most CPAs’ “to do” lists. When in doubt, make sure you confirm with your adviser that you’ve received all of your investment tax forms.

Make Traditional IRA Contributions

You can contribute up to $5,500 per taxpayer ($6,500 if you are over age 50) per year into a Traditional IRA. If you do not have a qualified retirement plan in your practice (such as a 401(k), ESOP, pension, money purchase plan, etc), you can personally make Traditional IRA contributions and deduct those contributions on your taxes regardless of your household income.

While you can always make contributions to a Traditional IRA, if you are considered an active participant in a retirement plan you will now have to be considerate of the deductibility phase-out rules that apply to Traditional IRA’s. The following chart outlines the deductibility of Traditional IRA contributions assuming active participation in a qualified plan:

Make SEP IRA Contributions

As a business owner, you can also make SEP IRA contributions up until you file your taxes. The amount that you can contribute to a SEP IRA is more complicated than just having your income below a certain threshold, but here are the basics:

The contributions must be employer-only. Personal contributions are not allowed into a SEP IRA.

The contribution amount can vary from year to year, but cannot exceed 25 percent of compensation. Total contributions cannot exceed $53,000.

“Compensation” is a multi-step computation. Work with a qualified CERTIFIED FINANCIAL PLANNERTM or CPA to figure out this dollar amount.

Your contributions must be “fair and equitable” across all team members. This is based on either percent of salary or flat dollar amount. You could not make a 25 percent-of-compensation contribution to your SEP as the business owner, and only make a 1 percent contribution to your team members’ accounts.

Know the SEP IRA accounts rules. SEP IRA accounts follow the same rules as Traditional IRA’s, such as minimum required distributions starting at age 70½, no pre-59½ distributions (subject to certain exceptions), and the ability to invest in a wide array of investment vehicles as each individual is responsible for opening up their own SEP IRA.

Scrutinize Your Itemized Deductions

Spending time pouring over your Schedule A (Itemized Deductions) can yield significant tax savings. The areas where we find most people overlooking deductions:

Medical & Dental Expenses: While you must reach a certain threshold of incurred expenses to qualify for the deduction, you may qualify if you’ve had unexpectedly high medical costs in 2015. If you have long-term care insurance in place, you may also be able to deduct those premiums.

Multiple residences: If you maintain multiple residences in different states, make sure you understand the implications of claiming residency in one state versus another. Consult with your CPA and/or other advisers about the scope of this opportunity.

Interest Paid (specifically Line 14 – Investment Interest): If you’ve paid investment interest, make sure to document it here. Also be aware of carryover rules from previous years that may have gotten “left behind.”

Miscellaneous Deductions: Any investment management fees that you paid out of taxable investment accounts (sorry, IRA’s don’t qualify) can be accounted for and documented in this section. Any amount of Misc. Deductions that is above 2 percent of your AGI can be counted on your Schedule A.

While the options are limited, there is still time to “pay yourself instead of Uncle Sam” in multiple ways before April 15. While we always say it’s much more tax advantageous to be proactive rather than reactive, do what you can for 2015, and make sure you’re taking the right actions now in 2016 to position yourself for success in the years to come!

Adam Cmejla, CFP®, CMFC®, is a Certified Financial Plannertm and president of Integrated Planning & Wealth Management, LLC, a financial services firm that works with optometrists.For more information: Contact Adam at 317-853-6777 or adam@integratedpwm.com.

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