Want to minimize this year’s taxes? Our top 8 tips for year-end tax planning.
We’re already on the countdown to Christmas, and before you know it another year will have come and gone, and it will be 2017. There are many aspects, both personal and professional that you need to consider during this “most wonderful time of the year,” but don’t forget your end of year tax planning! There are still some tax items (and savings!) for you to consider and take advantage of before entering 2017, and we want to help you make the biggest bang for your buck as you round out the year.
Here are our top 8 tips for end of year tax planning:
- Pay an extra mortgage payment in December (and any other deductible payments). If you are already planning to make some kind of deductible payment, such as a mortgage payment in January, try to pay an extra payment in December before year-end, so that you can maximize deductions on your 2016 taxes.
- Defer income or end of year bonus until next year. If you are able through your company, or, if self-employed, you may want to defer any additional income or bonus until 2017. This will allow you to show a smaller income for 2016 by deferring income for a few weeks into the New Year.
- Give to Charity. If you are charitable minded person, you may already give to charity on a regular basis, or you may have never given to a charity. Consider either ramping up your charitable giving or giving for the first time to a charity of your choice in order to maximize your deductions in this area. ‘Tis the season for giving after all!
- Taking the Minimum Required Distribution from IRA. If you turned 70 ½ this year, then you must take the RMD from your IRA by April 1. Figure out if it is best to take this in 2016 or in 2017, prior to April 1. You might also be able to spread out the amount you have to take out by taking some out this year, and some next year.
- Sell stocks at a loss to rebalance your portfolio. You can sell any stocks and mutual funds which have shown losses in 2016 in order to offset taxable gains.
- Gift to family or friends. You may gift up to $14,000 per individual or $28,000 per couple tax free. Consider gifting to those special folks in your lives during the holiday season. It’s a win-win for all!
- Contribute additional tax free income to your employer based 401(k) or IRA (non ROTH). If your employer provides retirement account benefits, you can contribute up to $18,000 per year to it before taxes. If you have not yet reached this maximum consider contributing a little more to your retirement account before the end of the year to gain more tax deferred benefits.
- Spend down your FSA. If you have an FSA, you will have to spend the money in the account down in order to avoid losing the funds that you have put in it this year. Check to see if you have excess in it, and if so, make sure to use it prior to the end of the year at your nearest drug store or doctor’s office as appropriate. You have set aside this money for medical expenses, so put it to use!
Finally, please consider whether you expect your income to increase or decrease over the next year. If you expect it to increase then holding off on charitable giving, early payment on deductibles, etc. may be more valuable in the coming year. If you need additional tax planning services for end of year planning, please call us at your earliest convenience at (919) 900-4720 to set up an appointment with one of our tax planning attorneys.