2017 is almost here. It’s never too early to plan ahead when it comes to reducing your taxes. An experienced and knowledgeable tax professional can help any individual or business make the right year-end savings moves with important advice and assistance. Since tax planning is mostly about timing, here are a few, last minute things you can do before the end of the year to reduce your 2016 tax bill.
*Defer income to 2017
Delaying the collection of business debts, rents, and payments for services may prove money-saving next year by postponing the payment of tax on the income until 2017. Note however that if your rights to a payment fully accrues in 2016, you may have to pay taxes on the payment whether or not you take the payment in 2016.
*Accelerate deductions
For taxpayers itemizing deductions, making payments for deductible expenses such as medical costs, state taxes, and qualifying interest before the end of 2016, rather than paying them in early 2017, may save a few dollars.
*Take IRA distributions & make contributions to tax-deferred retirement accounts
Once a taxpayer reaches age 70½, they must generally start taking required minimum distributions from traditional IRAs and employer-sponsored retirement plans, but there are exceptions. The penalty for a failure to take these distributions is 50% of the amount that failed to be distributed as required. Annual withdrawals must be made by December 31st to avoid the penalty. A reminder: You have until April 15, 2017 to make IRA contributions for 2016. You may contribute a maximum of $5,500 to an IRA for 2016, plus an additional $1,000 if you are 50 or older.
Tax-deferred retirement accounts may substantially grow as they compound over time free of taxes. Because employers often match contributions, company-sponsored 401(k) plans may be especially advantageous. Make sure you are contributing the maximum amount of money allowed ($18,000 for 2016, $24,000 if you are age 50 or over). Even if you are limited in what you can invest, try to contribute at least the amount that will be matched by your employer.
*Consider the alternative minimum tax (AMT)
It is important to determine whether the AMT applies to you before making any year-end tax-savings moves. The AMT disallows certain itemized deductions. Making traditional year-end tax-savings moves such as deferring income and accelerating deductions may have negative effects. Thus, making moves such as prepaying 2017 state and local taxes may hurt a taxpayer in 2017.
*Account for the net investment income tax
The net investment income tax is 3.8%. This tax may apply to some or all of net investment income if modified adjusted gross income (AGI) exceeds $250,000 if married filing jointly, $125,000 if married filing separately, and $200,000 if head of household.
*Watch your flex plans
Flex plans, or flexible spending accounts, are offered by many employees as benefits to employees who may use them to defer earnings into a special account which may then be used to pay family-related expenses such as medical bills.
These benefits are exempt from both income and Social Security taxes. But they are subject to the rule which states that you must “use it or lose it.” This means that the amount to be contrinbuted to the flex plan must be determined at the beginning of the year. If you don’t use all of the funds by the end of the year, you forfeit the excess.
*Take losses on stock positions to offest gains
If you sell your stock laggards who have been losing money so far, you may be able to use the losses to offset gains on other stock positions. However, there are specific rules governing recognition of losses on stock sales. You should certainly consult with your tax professional prior to taking any precipitate action to ensure you get the full tax benefits from the sale.
An experienced and knowledgeable tax professional may help any individual or business assess their current tax situation as it stands in the present looking ahead to the future. A tax professional may evaluate anyone’s situation to help determine the wisdom of any year-end tax-savings moves. If you are an individual or business in the New York or Tri-State area and have any question about taxes, especially in planning ahead for the next filing season, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
