How to Lower Your Income Tax Bill Before 2014 Ends
As we approach the end of 2014, it is time to start thinking about federal income taxes. Though it is not necessarily a pleasant thing to consider, there is good news: time remains to take action to reduce your tax bill come 2015.
A few things you can do now may result in significant tax savings on April 15. Here are three strategies provided by MarketWatch:
1. Time investment decisions carefully. The tax on long-term capital gains from the sale of stocks and similar investments is lower than if the investor holds onto the stock for less than a year and a day. Those in a low enough tax bracket may even pay no tax on long-term capital gains. Meanwhile, selling securities that have dropped in value since you bought them may make sense now. Reporting those losses can offset taxable gains from earlier in the year.
2. If your income is too high to collect long-term capital gains tax-free, MarketWatch recommends transferring ownership of some stock or mutual fund shares that have appreciated to a family member with a qualifying income, especially if he or she is 24 or older. The relative can then sell the securities and pay no taxes.
3. Converting a traditional IRA account into a Roth IRA can save you considerable taxes in the long run.
There are many strategies for reducing your income tax obligation, but the IRS’ rules can be complicated, and they change frequently. If you are unsure what you are doing could lead to an audit or criminal charges, you may wish to consult a tax attorney.