As the year end approaches, many are busy with shopping for Christmas gifts and planning holiday parties. However, this is a very important time to take advantage of several tax benefits. If you are planning to make any year-end charitable deductions, you may want to do so with investments you hold that are worth more than what you paid for them. If you held them for at least one year and one day, they can be gifted to your church or other charity at their fair-market value. The church will receive a great gift, and you will be able to take advantage of the gains without paying capital gains tax.
RumboughSpeaking of capital gains, this year the rate is 15 percent, but next year it most likely will be changed to ordinary income rates, which could make your tax bill higher when you sell securities at a gain. One strategy to capture the lower rate would be to sell the securities this year, realize the gains, then repurchase them later at the current price. That way, your tax bill on the gains may be lower than it might be next year. Before doing this, however, be sure to consult your tax preparer or financial planner, to make certain this is the right thing for you, and to time the transactions properly.
If your employer offers a cafeteria plan, you may want to consider having funds deducted from your pay to cover qualified medical expenses. The funds set aside are done so pre-tax, saving tax dollars. The maximum amount you can set aside next year is $2,500. This is a “use it or lose it” plan, however, so be sure you have a good estimate of what your qualified expenses will be. Some employers offer a “grace period” that extends spending of those funds through March 15 of the following year.
Looking back over the year, did you participate in any mission trips with your church or non-profit organization? If so you may be able to deduct a portion of your trip expenses as a charitable contribution. These and other tips can be found on the IRS website, at www.IRS.gov. Look for the “individual” section. Now, enjoy the rest of the year!
– Rumbough, CPA, CFP, is chief operations officer with the Baptist Foundation of South Carolina. Contact her at 800-723-7242. In accordance with IRS Circular 230, any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.