• Maximize retirement plan contributions
• Maximize contributions to College Savings Plans
• Maximize contributions to Health Savings Plans
• Take all Required Minimum Distributions from IRAs
• Maximize charitable contributions
Here are some further tax-savings strategies.
Shift income between 2016 and 2017, where possible. There are numerous income thresholds that, if exceeded, result in additional taxes or higher tax rates, or both. If you are married filing jointly and have modified adjusted gross income (MAGI) in excess of $433,800, you will lose all of your personal exemptions and up to 80% of your itemized deductions. If you are married filing jointly and have MAGI in excess of $250,000, you will pay an additional 3.8% tax on your investment income.
If you are a cash-basis taxpayer (most are) and own your own business or are self-employed, you do have some ability to delay revenue recognition or accelerate the payment of expenses by delaying invoicing customers or paying bills in advance. This must be done within reason and you must have enough cash flow to pay all your obligations until you receive the delayed revenue in 2017.
If you are an employee and expecting a significant year-end bonus, you may be able to have your employer delay paying it until 2017. Done properly, the employer should be able to deduct the bonus as a business expense in 2016, while you do not have to report the income until 2017.
Pay 4th quarter state estimated tax payments prior to December 31. Although the final state estimated tax installment is not due until January 15, 2017, payment of those taxes prior to December 31, 2016 is deductible for 2016 federal tax purposes. If we prepare your tax returns and you make estimated tax payments, we will contact you in early December to ensure those payments are made before the end of the year.
Make all college tuition payments prior to December 31. Payments made in 2016 for tuition for an academic period beginning in 2016 or during the first three months of 2017 qualify for education credits taken in 2016.
Review all non-qualified investment for potential tax losses. All gains and losses in retirement accounts (IRAs, 401(k)s, etc.) are non-taxable events until the monies are distributed from the account. However, non-qualified accounts (individual and joint accounts) are taxed differently. Mutual fund capital gains are distributed to the investor and must be reported on their income tax return. Selling investments with a loss is a simple means of offsetting some or all of the capital gains distributed. In addition, individuals can deduct up to $3,000 of additional losses against all other income. Any net losses in excess of $3,000 can be carried forward to future.
Be aware of the wash sale rules, which state that taxpayers cannot sell a holding at a loss and purchase the same holding within 30 days before or after the sale. Losses in violation of wash sale rules are not deductible.
If we manage your investments, we will review your account in early December and take losses as appropriate. These transactions will be reflected on your year-end investment statements.
Interest earned on Savings Bonds that are cashed in to pay college expenses may be excluded from taxable income. An individual may be able to cash in Series EE bonds issued after 1989 or Series I bonds without having to include in income some or all of the interest on the bonds if the individual pays qualified education expenses for herself, her spouse or a dependent and the individual’s MAGI is below $145,750 for married filing jointly and $92,000 for single taxpayers.