It’s not too late! Before the clock strikes midnight on January 31, you still have time to potentially take some steps to lower your 2016 taxes. Here are six end of year tax tips:
Check Your Required Minimum Distributions
For those of you that are required by Uncle Sam to take distributions from your traditional IRA account, do a quick verification that you have satisfied your distribution for 2016. This quick year-end tax planning tip is a reminder so you avoid paying up to a 50% excise tax if you fail to take the appropriate distribution.
Maximize Your Retirement Account Contributions
One important year-end tax planning recommendation is to maximize the contributions that you can make to retirement accounts. If you are eligible for a company sponsored 401(k), at the very least, meet your employers match. Additionally, you may want to try to increase your own contribution in an effort to get closer to the maximum amount allowed; $18,000 for 2016 if you are under age 25 or $24,000 if you’re over the age of 50. It also applies to IRA contributions even though you have until April 18, 2017 to make a 2016 contribution, the maximum you can contribute is $5500 plus an extra $1000, if you are over age 50.
Flex Spending Accounts
There is still time to take a look at your flexible spending accounts. The “use it or lose it rule” generally applies when looking at your flex account. You may also want to check with your employer to see if they have adopted a grace period allowed by the IRS to actually set aside 2016 money into the beginning of 2017.
Look at selling investments that have an unrealized loss. Taxes should never be the only reason to sell an asset, but if you are looking to make a change in your portfolio, selling out of a position with an unrealized loss can help to offset other gains. Consult with your tax advisor and see if it would be valid to book a loss here before year end to offset any realize taxable gains. Additionally, if your losses exceed your gains, you can use up to $3000 to offset other income or you can book those losses for next year.
Verify Your W-4 Withholding
When looking at year-end tax planning or looking at proactive tax planning strategies into 2017, those of you who got married, divorced or had a baby may want to look at the allowances you claim on your W-4. The goal here from a strategic tax planning point is to reduce the potential for too high of a tax bill or too high of a refund. For some of you it feels good to get a big tax refund every year, however what you were ultimately doing is providing Uncle Sam a short-term no interest loan.
Pay It Forward
A final tax planning strategy is to look at your charitable contributions and accelerate what you potentially plan on doing in 2017 and make those donations in 2016. While this may not be suitable for everyone, you should at least be mindful of any last-minute deductions you can make in the calendar year.
For more information on what is tax planning and how to utilize strategic tax planning, contact our office today.
Content in this material is for general information only and not intended to provide specific investment, tax or legal advice or recommendations for any individual.
Source: Carson Wealth, Published by Mark Lookabill