3 Tips For A Year-End Tax Checkup
As the year comes to and end, just a few days remain for some last-minute tax moves to prep for April 15, 2015. When considering late-in-the-year moves, a few things must be kept in mind:
- Do not act out of haste and fear
- Revisit specifics in order to get the best options available
- Be aware of broad changes
1. Act Prudently
Receiving any cut at any cost before January 1 may sound appealing. However, if the move only delays further frustrations or actually has the potential to hinder your future financial situation, that particular move may need to be shelved.
Retirement plan conversions may seem like the best option, but it is important to be aware of why the unique plans are in existence to begin with and determine which fits your personal situation.
As Kiplinger advised, there are moves to be made for either Roth holders or traditional IRA/401(k) holders:
"If you think your tax rate is going to rise sometime in the future, converting to a Roth makes a lot of sense. Withdrawals from traditional IRAs are taxed at your ordinary income tax rate, while all withdrawals from Roths are tax-free and penalty-free as long as you're at least 59.5 [years old] and the converted account has been open at least five years."
If converting is not the wisest long-term plan for your situation, you could further contribute to 401(k). Kiplinger continued, "Money you contribute to your 401(k) [. . .] is excluded from your income, lowering your tax bill."
2. Revisit Specifics
The appropriate tax moves are as unique as the individuals who make them. For example, while employers now have the option to extend Flex Spending Accounts (FSA) or other medical spending accounts for a two-and-a-half month grace period and/or let $500 roll over from year-to-year, employers are not required to offer either option.
These options are available at the discretion of the employer, so determining your particular FSA specifics is essential before scheduling an early annual or holding off on purchasing that new pair of glasses. Depending on whether the FSA returns to $0 January 1 might influence your medical decisions over the next week.
3. Be Aware Of Bigger Trends
While keeping up with Congress is certainly not easy, the moves inside influence your life, whether you are aware of it or not.
One instance of this type of broad change? Bill H.R. 5771, which went to President Obama's desk the week before Christmas and contained tax extensions that could influence how you file next year. Additionally, the bill did not guarantee all the expired extenders would be renewed or even extended through the end of the year.
Such bills passed into law may not grab headlines in the same way as cultural trending phenomena. They can however help -- or hinder -- your tax season based on whether you anticipate or overlook these tax extensions.
Regardless of whether you file your own taxes or rely on the expertise of financial advisors/tax preparers, these reminders can help eliminate tax season stress and help ensure your own level of financial know-how and stability.
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