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9 Steps to Take Now to Cut Your 2015 Taxes

Tax season is months away, but the moment is now

By Eva Rosenberg and MarketWatch

(This article appeared previously on MarketWatch.)

The month of November brings us Veterans Day and Thanksgiving — good times to appreciate the good things, people, and experiences in our lives. November is also open enrollment month for all employers that offer employee benefits. This offers employees a tax benefit, but they often overlook it. Here are 9 things to do this month to reduce your 2015 taxes.

1. Put Money in a Flexible Spending Account

Which benefit is often unused? The Flexible Spending Account (FSA). For employees who must pay a variety of medical expenses each year, this is a valuable benefit. Each employee is allowed to allocate up to $2,550 to this account — before any taxes are deducted from that money. To someone in a 25 percent tax bracket (+ 5 percent state), this is a savings of nearly $1,000. (Double that if you’re married and you both have access to HSAs.) And you save more than just income taxes — you also save the 7.65 percent of Social Security and Medicare taxes, and the state disability that is deducted from your paycheck — along with any other percentage of payroll-related deductions.

If this benefit is so good, why isn’t it used more often? Good question. People don’t trust it because the money isn't returned to them if they don’t spend it all during the year. So, you only want to participate in this medical FSA program if you know that your prescriptions, therapies, braces, glasses, or medically-motivated surgeries and procedures will cost you as much as your FSA contribution. The good news is, a few years back, the law changed allowing employers to give you until March 15 of the following year to get treatments and to submit all your medical expenditures for reimbursement. Many employers have opted in to this procedure. Ask if yours has. Some employers have even added a provision that they will return your funds if you don’t use them. In that case, those funds are added back to your wages.

Some employers issue a credit card to use for medical-related expenses, but if not, it’s important to save all the prescription receipts, medical office parking receipts, and all the receipts for recurring costs. Things that an FSA covers include your contacts, and the lens solution; eyeglasses; medical office copays; a dental implant; Lasik surgery; C-PAP supplies; medical massage; and psychologists’ therapy sessions.

2. Set Aside up to $5,000 for Child Care

Open enrollment also offers an opportunity to set aside up to $5,000 for child care. This benefit should only be used by one spouse, not both. This gives you a much better value than the Child and Dependent Care Credit on Form 2441. Using the same tax bracket as before, this is worth about $2,000 vs the maximum $600 to $1,200 (for up to two children) value for the Form 2441 credit. Besides, you don’t have to fill out that form, with all the information about your child care provider. And it removes a common audit target. You do have to use a licensed child care provider. And you must submit the paid receipts to the fund administrator to get reimbursed. So, if you are spending at least $5,000 for one child anyway, sign up for this benefit.

3. Deal With Your Unused Clothing and Furniture

We always talk about cleaning out your closets and attics to donate unused clothing, furniture, appliances, etc. to charity. Sure, do that. And get the receipts. But what if you cannot use the deduction? Here are two things you can do with all that stuff:

Give the things to your friends or family members who can use the deduction. Let them donate all the goodies.

Sell those things online.

4. Get Organized

You’re going to have a few days off this month. Sure, there are ballgames, family gatherings, parades and all. But it’s also a good time to get organized. Find yourself a good record-keeping system and start gathering all your receipts for things you will need in time for the next tax season. There are many apps, online software tools, and other options — many of them free or very inexpensive. Besides, if you pay for a system, you might even be able to deduct the cost.

5. Make a List

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Make a list of all the different sources of income you had in 2015 — from jobs, unemployment, Social Security, disability, a pension, IRA distributions, interest, and dividends. Especially important are accounts you closed during the year -- and new accounts you opened. This will be your checklist for next year’s tax return, to make sure you’re not missing income.

6. If You Moved, Let Everyone Know

If you moved during the year, notify all your previous employers about your new address. Also, all your bank, investment and credit card accounts so you get all your year-end mail on time. Also, remember to file Form 8822 — Change of Address with the IRS (and the related state form) to let them know where you are. No…you don’t want to make it difficult for them to find you. After all, sometimes they have refunds for you.

7. If You’re Self-Employed, Open a Solo-401(k) or SEP IRA

If you are self-employed, open your solo-401(k) account or SEP IRA account before the end of 2015. Having the account open before De. 31 will allow you to make contributions during 2016 to reduce your 2015 taxes. It’s a neat trick that can save you a fortune if your business showed a big profit.

8. Determine What You Expect to Owe

Determine how much you expect to owe in 2015, immediately. This will give you time to change your withholding for December. Or let you know how much to pay for your January 15 estimated tax payment. And if you’re coming up short, you can start saving up money to pay it by April 15.

9. Follow the News on Extenders

Stay tuned to this column for news about the annual tax extenders. The Senate Finance committee started to write an extender bill back in July. But we’re still waiting for the Senate and the House to pass a bill — hopefully while taxpayers still have time to take advantage of some of the provisions.

Starting to get organized now means that you won’t be rushed or pressured when tax season begins. Next year, you will be able to just sit back and collect all the W-2s, 1099s, etc.

Eva Rosenberg Read More
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