2016 is coming to a close! As with the end of any year there are moves you may want to consider making before the end of the year to lower your tax bill for 2016.
During his campaign, President Elect Trump vowed to lower tax rates and simplify the tax code.. This means that if tax rates are lower in 2017, it would be a good idea to defer as much income as possible to 2017 in order to pay less taxes on that income.
Some ways to do so would be putting off the yearly bonus until January, waiting to redeem savings bonds,and selling stocks that are in a losing position to reduce income this year. Self-employed, cash basis taxpayers can delay billing clients until the end of the year so that payments will not be received until 2017. Taxpayers can delay IRA or retirement distributions until January. (Do not delay any required minimum distributions.) Don’t sell stocks with capital gains this year unless they can be offset with capital losses.
Pay tax deductible expenses before the end of the year. Consider using a credit card for these payments which will conserve cash but allow the deduction for 2016. If you itemize deductions make state estimated tax payments due by January 15th, 2017 in December to take advantage of the deduction in 2016.
Don’t miss out on these permanent incentives
Thanks to the PATH Act, these tax incentives are now permanent. .
- The American Opportunity Tax Credit is a credit for qualified education expenses paid for an eligible student for the first four years of higher education.
- The teachers’ $250 classroom expense deduction has also been expanded to include professional education expenses
- The ability to deduct state and local sales tax instead of state income taxes
- The exclusion for a direct charitable donation of up to $100,000 from an IRA
- The 100 percent gain exclusion on qualified small-business stock held for 5 years (Sec. 1202 allows noncorporate taxpayers to exclude from federal income tax 100% of the gain on the sale of certain qualified small business stock (QSBS), limited to the greater of $10 million or 10 times the adjusted basis of the investment.)
- The reduced five year recognition period for S corp built-in gains tax
- 15-year straight-line cost recovery for qualified leasehold improvements, restaurant property and retail improvements
- Charitable deductions for the contribution of food inventory
Charitable donations help lower your tax bill. Here are three ways to donate that will help lower your tax bill:
- Monetary donations
- Donated items
- Property donations
Max your retirement accounts
Be sure to maximize 401(k) and IRA contributions and to take advantage of the catch-up contributions if you are age 50 or older. If your employer matches your 401(k) contributions, be sure to contribute at least the amount necessary to earn the maximum matching contributions before the end of the year. Even if your employer doesn’t match, money put into your 401(k) is not taxed now so it makes sense to put away as much as you can..
Lower overall capital gains exposure
If you have a large amount of taxable gains for 2016, take a look at your portfolio for duds and offset your gains by realizing losses on those duds.
Proceed with caution when buying or selling Mutual Funds
Lots of Mutual Funds make capital gains distributions in December so keep an eye out to make sure buying or selling won’t add to your tax bill.
Just a reminder, if you were excited about the proposed tax rate changes by President Elect Trump, you should know that a change in tax rates will not affect taxpayers until 2018 when you file your 2017 taxes.
Give us a call and we will help you with your year end tax planning so that you pay the least amount of tax when filing next year!