Recently I wrote about year-end tax planning and why it's important to make some transactions now. I also listed these tax planning transactions to consider before the end of 2015.
Earlier this week, I caught up with Mark Steber, chief tax officer at Jackson Hewitt, and we chatted about a few other year-end tax moves that are often overlooked. Here are three:
Pay winter semester tuition now. If you are a student or have a student in college, and tuition is due in January or February next year, you may want to consider paying that tuition bill now. Doing this may help to maximize any education tax credits you might be eligible to claim. One such credit is the American Opportunity Tax Credit which provides a tax credit of up to $2,500 per student.
You'll also want to check with the college or school to ensure they have a correct record of all qualifying education costs you paid in 2015 to ensure they are prepared to report these correctly on Form 1098-T. If you attempt to claim the credit for amounts not reported on this form, the IRS is sure to reject the credit -- and it's time-consuming to correct this avoidable mistake.
Take distributions from your IRA. Folks who are age 70 or older this year need to keep in mind that the IRS requires you to take mandatory withdrawals from retirement accounts. The minimum amount you must withdraw is specified on a table in IRS Publication 590, which lists the factor to use based on your age, for calculating the amount you must withdraw.
If you turned 70 this year, a one-time rule allows you to delay taking the first mandatory distribution by April 1 following the year you turn 70 1/2. But don't delay and wait until the April 1, 2016, deadline to take out the first minimum withdrawal. If you do, you'll also have to make another withdrawal by December 31 2016. Two minimum withdrawals in the same year could bump you into a higher tax bracket and increase your total tax liability in 2016.
You'll want to get this right, because doing it incorrectly can cost you. If you don't withdraw enough or you don't make IRA withdrawals on time, the IRS can levy a penalty of up to 50 percent of the difference between the amount you took out and the amount you should have taken out.
Regardless of whether you are still working, you must begin taking minimum required distributions each year from your traditional IRAs. Folks still working can continue to put off distributions from their employer's retirement plans. Roth IRAs are not subject to these distribution requirements.
Make sure to notify the IRS if you've moved. Complete and submit IRS Form 8822 to notify the IRS. This may also help to thwart any fraudsters who attempt to file a fraudulent tax return using your information and your former address. Also gather your records of the costs of your move as you may be able to claim the Moving Expenses Deduction if you moved or relocated for work in 2015.
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