5 Financial Moves to Make For Tax Season

  1. Open or fund your retirement plan or Health Savings Account (HSA). If you already have an Individual Retirement Account (IRA) or other tax qualified retirement plan or intend to open one, you have until April 15th to fund the account. These plans are a great way to reduce your taxable income and invest or save using pre-tax dollars, or in the case of a ROTH account, creat future tax-free income. You must be eligible to open one of these by either meeting income limits or through self-employment. Even if your income is too high or you are covered by an employer plan and are not eligible for a Traditional or Roth IRA, it may still make sense to fund a non-deductible IRA and use the “back door” or “2-step” approach to a Roth conversion. You may also be eligible to open an HSA if you have a high deductible health plan, which will allow you to lower taxable income and pay health expense with pre-tax dollars.
  2. Use up the funds in your Flexible Spending Account. Some employers have taken advantage of new rules providing a grace until March 15th to use up the funds in your FSA, but these are still “use it or lose it” accounts. For healthcare FSAs, there are a number of ways to quickly spend the money on eligible expenses, such as prescription glasses. For dependent care FSAs, it is more difficult to find new or additional expenses, so be sure to comb through your expenses for 2015 and find day care, babysitting, or summer and/or holiday camps that you may have previously missed.
  3. Take your first Required Minimum Distribution. If you turned 70½ last year and have certain qualified retirement plans, the IRS requires you to begin taking distributions. In the first year, you are given a grace period and have until April 1st to take your distribution. Keep in mind that if you have waited until this year to take your first RMD, you will need to take another distribution prior to the end of the year
  4. Hire a tax preparer or get organized to do it yourself. If you have a complex tax situation such as multiple W-2s or 1099s, you have large investment gains or losses, or you own one or more businesses, it usually makes sense to hire a CPA or tax professional. Ask friends or colleagues for a recommendation or do your research to find an individual or firm that will be a good fit. If your financial situation is more straightforward or simple, it may make sense to do your own taxes. There are a number of good tax preparation software programs available online that are very inexpensive or even free.
  5. Prepare for estimated 2016 taxes. If you end up owing additional taxes for 2015, you will most likely be required to make estimated tax payment throughout 2016, so plan accordingly. Your first estimated payment is due April 15th and you should understand when future payments are required. It also helps to create a strategy for funding those quarterly estimates, such as setting aside 5% or more of income.

Bryan J. Bentley is an investment advisor at Bentley Financial. For more information, call 916.877.5125 or visit MyBentleyFinancial.com.

Investment Advisory Services offered through Retirement Wealth Advisors, (RWA) a Registered Investment Advisor. Bentley Financial and RWA are not affiliated. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. This article is designed to provide general information on the subjects covered. Pursuant to IRS Circular 230, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that the author does not give legal or tax advice. You are encouraged to consult your tax advisor or attorney.