2015 Year-End Reminders
Individual Retirement Accounts, or IRAs, are important vehicles for you to save for retirement. If you have an IRA or plan to start one soon, there are a few key year-end rules that you should know. Here are the top year-end IRA reminders from the IRS:
- Know the contribution and deduction limits. You can contribute up to a maximum of $5,500 ($6,500 if you are age 50 or older) to a traditional or Roth IRA. If you file a joint return, you and your spouse can each contribute to an IRA even if only one of you has taxable compensation. You have until April 18, 2016, to make an IRA contribution for 2015. In some cases, you may need to reduce your deduction for your traditional IRA contributions. This rule applies if you or your spouse has a retirement plan at work and your income is above a certain level.
- Avoid excess contributions. If you contribute more than the IRA imits for 2015, you are subject to a six percent tax on the excess amount.The tax applies each year that the excess amounts remain in your account. You can avoid the tax if you withdraw the excess amounts from your account by the due date of your 2015 tax return (including extensions).
- Take required distributions. If you’re at least age 70½, you must take a required minimum distribution, or RMD, from your traditional IRA. You are not required to take a RMD from your Roth IRA. You normally must take your RMD by Dec. 31, 2015. That deadline is April 1, 2016, if you turned 70½ in 2015. If you have more than one traditional IRA, you figure the RMD separately for each IRA. However, you can withdraw the total amount from one or more of them. If you don’t take your RMD on time you face a 50 percent excise tax on the RMD amount you failed to take out.
- IRA distributions may affect your premium tax credit. If you take a distribution from your IRA at the end of the year and expect to claim the PTC, you should exercise caution regarding the amount of the distribution. Taxable distributions increase your household income, which can make you ineligible for the PTC. You will become ineligible if the increase causes your household income for the year to be above 400 percent of the Federal poverty line for your family size. In this circumstance, you must repay the entire amount of any advance payments of the premium tax credit that were made to your health insurance provider on your behalf.
Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.
Additional IRS Resources:
- Tax Topic 451 – Individual Retirement Arrangements (IRAs)
- Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs)
- Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)
- Retirement Plan and IRA Required Minimum Distributions FAQs
Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts
Review Investment Gains and Losses
Consider selling investment losers to offset any capital gains. When calculating your gains and losses, be sure to include mutual fund distributions; they are taxable gains even when you hold onto the shares. You may want to sell appreciated securities before year-end (or donate them to charity; see #7 below). If you have excess losses, they may be carried forward into future tax years, at a rate of no more than $3,000 each year.
Make Charitable Contributions
You can make year-end gifts to charity with cash or with appreciated securities. If you donate appreciated securities (like stocks), you can take a deduction for the current fair market value.
If you decide to make gifts in cash, you can simply write a check. Or you can put the amount on a credit card in December, pay the bill when it arrives in 2016 and deduct the donation in 2015. Either way, you must submit a letter of acknowledgment from the charity, showing the date of the gift, the amount, and whether you received any tangible benefit in exchange, such as a thank you gift.
Donations of used cars may be deducted at fair market value only if the charity uses the vehicle in its tax-exempt work. If the charity sells it, your contribution is limited to the actual proceeds of the sale.
Make Your House Energy-Efficient
If you make qualified energy-saving home improvements by the end of 2015, you can claim a tax credit of up to 30% of the costs. The improvements must meet federal energy-efficiency standards in order to qualify for the credit. For more information, go to www.EnergyStar.gov