Right now is the best time to lower your tax bill for your 2014 filing next April. In fact, after today, you only have 17 days to reduce your tax liability.
"Once you pop the champagne bottle, scream happy new year and give your significant other a kiss at midnight, almost all of your tax planning strategies are lost, if you haven't already implemented them," says John Vento, president of Comprehensive Wealth Management and author of "Financial Independence, Getting to Point X."
The best way to plan is to consider ways to reduce your 2014 taxable income. Here are five ideas for doing just that:
1.) Sell your losers. If you invest in individual stocks outside a retirement plan and have enjoyed widespread gains, analyze your portfolio to identify any losers you have. If you sell those losers you can use the capital losses to offset your capital gains, plus you can take an additional $3,000 in losses against your other income. You can buy back those losers next year if you plan to hold them for the long term. Avoid tripping IRS wash sales rules by buying the same securities 30 days after when you sold them.
2.) Delay taking your bonus. One easy way to reduce your 2014 income is to get your boss to delay giving you your bonus until 2015. That way your bonus won't show up as 2014 income. If you are self-employed, don't send out invoices until after the first of the year.
3.) Set aside more for retirement. Most people don't contribute the maximum they are eligible for to their workplace retirement fund. According to the IRS, contribution limits are $17,500 for 2014 and $18,000 for 2015. Catch up limits for workers 50 and older are $5,500 for 2014 and $6,000 for 2015. Check the rules for contributing to your 401(k) to make sure you can modify contributions at any time. Remember, money to your 401(k) or an IRA comes out before you pay taxes (as long as you are within contribution limits). Why not pay yourself before paying Uncle Sam?
4.) Give to charity. If you are already planning to give money to your favorite charity, now is the time to do it. In addition to cash, you can also give household goods, clothing, even a car. But before you send that old junker off, talk to a tax professional to make sure you are doing it the right way. Vehicle contributions are often scrutinized by the IRS.
5.) Pay your tuition bill early. If you've got a child in college, your spring semester bill isn't likely due until January, but it may be worthwhile to pay it now. Early payers can claim the American Tax Credit on their 2014 return. The credit is worth up to $2,500 and up to 40 percent of it is refundable, which means you could get back as much as $1,000 as a tax refund if you don't owe taxes. You can claim tuition, fees and course materials.
6.) Finally, don't leave any money on the table. Be sure to use any money you've set aside in your flexible spending account at work. Like a 401(K), FSA money goes into the account before taxes, but if you fail to use the money in the same year as it is contributed, you could lose it. Plan ahead and make April 15 the best it can be!