5 Tax Moves To Make This Fall

In case you were not paying attention to the 40 updates the IRS announced last year for this tax year — or if you just need a refresher — here are the highlights from the bill that are in effect for this year.

Before You Consider Tax Moves, Keep In Mind Changes That The IRS Has Made

The tax bracket parameters have changed slightly, by about $100-200 across all fields. So, if last year you were on the cusp of a percentage bracket, pay close attention this year even if your income has not changed, because your tax bracket may have.

Likewise, standard deductions and personal/dependent exemptions have also changed. Personal/dependent exemption rates have increased by $50 across the board, while standard deductions for single are at $6,200 from last year’s $6,100; joint filers are at $12,400 from $12,200; head of household at $9,100 versus $8,950.

Although it might seem like common sense, remember that you prepare taxes for the previous year (2013) in the current year (2014). We reiterate this because it can get confusing as you read about tax bills and when they come into effect and prepping for next year’s tax season.

In other words, any tax changes you make today are for tax year 2014, which you will file early 2015.

What Does All Of That Mean For Tax Move Options?

While some tax moves are smart regardless of any IRS changes, there are a few circumstances that necessitate special consideration due to these parameter changes. Below, we will go over just a few of the smart tax moves you should think about this fall.

1. Contribute Now To Your 401(k)

Remember that most retirement savings plans’ contributions occur before taxes; by contributing to a 401(k) you will not only reduce your taxable income, it will help secure your future.

2. Take A Hard Look At Losses

Consider selling “loser securities” (securities worth less than what you paid). Capital losses will offset capital gains. Especially if you are in top tax brackets, capital losses can reduce taxable amount.

3. Look At The Benefits of A Roth IRA vs. Traditional IRA

Consider Roth conversions for traditional IRAs. While there is a tax cost for converting (conversions are considered taxable liquidation), it still might be a smart move for you. After the conversion, all income and gains accumulated (and withdrawals) are federal-income-tax-free. Just remember that not all withdrawals qualify for this exemption. Familiarize yourself with what withdrawals are qualified for Roth IRAs regardless of whether you are converting or already have Roth IRAs.

4. Prepay

Look at your big hitter bills and see which of those can be paid early. This is especially helpful for college tuition and home mortgage payments.

Look into the American Opportunity Tax Credit (the Hope tax credit replacement) and see how paying spring semester tuition now, before the New Year, can be beneficial.

For home payments, paying January’s bill before the end of the year will provide you with 13 months deductible interest instead of 12.

5. Give Back To Your Community

Not only is donating to charities a wonderful humanitarian habit to establish, it is a reciprocal gift come tax season. As the weather turns colder, need often increases for those less fortunate. Donate now, as the season is changing. Need inspiration on how to donate? The IRS website lists charities that are tax-exempt and eligible for tax-deductible contributions.

When in doubt, talk to your financial advisor about potential tax moves. The bottom line is to recognize that you have some control in your own bottom line. While the IRS changes for this tax year are not drastic, they can influence the tax moves you take for granted, such as regular set amounts of contributions.

Take the time to reevaluate your typical end-of-year tax moves and readjust your strategy if necessary. In the end, remember that some moves are always smart: bolster your 401(k) and donate to those less fortunate. You will be investing in your own future and that of your community—all while leaving yourself in a better financial situation come tax season.

Plus:

4 Things You Can Do Today To Help Keep Your Retirement Goals On Track

A Fund With A No-Stress Approach To Retirement Income

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