It's not too late to cut
your 2016 tax bill. Prior to December 31st:
Increase your 401(k)
and 403(b) contributions if you haven't been contributing at the
maximum rate all year. This year you can put up to $18,000 into
your 401(k) or 403(b) plan at work. Anyone 50 or older by December 31st
can put away an additional $6,000. Contributing to a 401(k) or
403(b) plan at work is one of the best tax shelters available to you
during your working years. (You might also start thinking about
setting your 2017
retirement savings goals too.)
If you’re self-employed, consider setting up a Solo 401(k)
by 12/31. A Solo 401(k) plan lets a self-employed person hit the
$53k retirement plan max with less income than a SEP IRA, and also
allows a person aged 50 or older to put away $59k into a retirement
plan for 2016 versus $53k into a SEP IRA.
Take a look at your
withholdings and instruct your employer to withhold additional taxes
getting hit with an underpayment penalty if you haven’t had enough taxes
withheld during the year. (Take a look at the
IRS' Withholding Calculator to set your withholdings for 2017.)
Consider selling your
investments held in non-retirement accounts that have decreased in value
since your capital losses can offset other capital gains realized during
the year (including from your mutual funds). Excess losses can
then be used to offset up to $3,000 of wages and other income.
Make sure to wait at least 31 days before buying back a security sold at
a loss, or the IRS will disallow the loss under the "wash sale" rules.
Consider selling your
investments held more than one year that have increased in value if you are in the
two lowest tax
since the long-term capital gains rate for you will be 0%. You can then buy back those
securities, and the "cost-basis" will be the higher amount. This
strategy will save you taxes down the road when you sell these
securities. Just make sure that the capital gains realized don't push you
out of the 15% tax bracket, or you'll be taxed on those gains that fall
outside that bracket at 15%.
Send in your January 2017 mortgage payment early enough so it will be processed prior to
12/31/16. By sending in your payment a few weeks early, you can
deduct the interest portion of that payment a full year earlier.
Clean out your closets
and donate your clothing and household items to a charitable
since "non-cash" contributions are deductible if you itemize.
Don’t forget to get a receipt. And you should make a
list of each
item donated, along with its condition, and snap a few photos as
well. Remember, only donations
of clothing and household items in "good condition or better" qualify
for a deduction. (To track what you donate, download our
Non-Cash Contribution Worksheet -
Excel Version or the
For gifts of money,
making your donation by credit card before December 31st allows you to
deduct the donation on this year's return, even if you don't pay your
credit card bill until 2017. And you always have the option of
donating appreciated investments to charities. You get to claim your
donation based on the value of the assets donated, without paying any
capital gains taxes on the appreciation. (Use this IRS tool to
confirm a charity as legitimate.)
Don't donate investments that have decreased in value. Instead,
sell them first, take the loss on your taxes, and donate the money
received from the sale.
Pre-pay your projected
state tax shortfall if you'll be itemizing your deductions and not
subject to the alternative minimum tax. Due to the higher tax
rates enacted for 2014, there is a better chance that you won't get hit
by the AMT this year than prior to 2013.
Pre-pay and pay off
your medical bills if your total
medical expenses exceed 10% of
your income and you itemize. Please note that this threshold
remains at 7.5% for people over the age of 65 through the end of 2016, while the threshold for everyone
increased from 7.5% to 10% back in 2013.
always, evaluate whether you'll save any taxes by postponing 2016 income or deductions into 2017 or
by accelerating 2017 income or deductions into 2016. With Trump
the next President of the US, and with a Republican majority in both houses
of Congress, there is a very good chance that tax rates will decrease in
Got questions about year-end tax planning? If so, please
contact the closest
Decreased Tax Brackets and
Rates: Trump's plan calls to reduce the number of tax brackets from the
current 7 brackets (10%. 15%, 25%, 33%, 35% & 39.6%) to just 3 brackets as
12% rate for income up to $75k
for Married Couples or $37.5k for Single Individuals.
25% rate for income between
$75k and $225k for Married Couples and between $37.5k and $112.5k for Single
33% rate for income over $225k
for Married Couples and over $112.5k for Single Individuals
Capital Gains Rates: The
current rates for long-term capital gains are currently 0% for people in the
lowest two tax brackets, 15% for people in all but the highest tax bracket, and 20%
for anyone in the highest bracket. Trump's plan will continue with these three
rates for capital gains.
Repeal the 3.8% Medicare Tax on
Investment income: The
Tax on investment income was instituted in 2013 and hits Single Individuals who earn more than
$200k and Married Couples who earn more than $250k .
Increased Standard Deduction:
Trumps plan will increase the standard deduction to $30k for Married Couples (up
from $12.6k in 2016) and to $15k for Single Individuals (up from $6.3k in 2016).
His plan also calls for the elimination of Personal Exemptions ($4,050 per
person in 2016) and the Head of Household Filing Status.
If you are fortunate enough
to receive a gift or inheritance of more than $100k from a foreign person,
you need to report that gift or inheritance to the IRS. Please note
that this is a
reporting requirement only. There should generally be NO US taxes due.
Failure to report the gift or
inheritance can be quite costly. The Failure to File Penalty is a 5% per month
penalty based of the value of the gift or inheritance received. After 5 months, the
penalty maxes out at 25% of the gift.
The IRS rules are reasonable
straightforward. Any US Person who receives $100k or more in a calendar year
from a foreign person or estate must file a
Gifts from foreign people who are Related Persons need to be lumped together.
The Instructions define a US person as a Citizen or
Resident Alien of the United States. It's my understanding that members of the
same US household are lumped together when determining the value of the gifts
received and whether the $100k threshold has been met.
Reporting the Foreign Gift or
Inheritance isn’t very difficult at all. Start by completing the Identifying
Information on Page 1 of the Form 3520. Then, jump to the end of the Form and complete Part
4 which asks you to report:
The date of the gift
A description of the gift received
The Fair Market Value of the Gift.
Please note that the due date
for filing the 3520 is April 15th following the calendar year that
you received the gift. You can extend this due date to October 15th
by filing an Extension (Form 4868) for your personal tax return by 4/15.
Please make sure to read the
for the Form 3520 very carefully before submitting this paperwork with the
IRS. You can find instructions at
IRS.gov. You might consider getting the help
of a tax professional.
We've recorded an informative 3-minute presentation on how to report a foreign
gift or inheritance of more than $100k in a calendar year available at: https://youtu.be/e_Ay49EKtMM.
Please view it, like it, and share it.
For 2016, the standard deduction for a single individual is $6,300 and
for a married couple is $12,600. A person will benefit by itemizing once
allowable deductions exceed the applicable standard deduction. Itemized
deductions include state and local income taxes (or sales taxes), real estate
taxes, mortgage interest, charitable contributions, and unreimbursed employee
For 2016, the personal exemption is $4,050. Individuals will claim a personal deduction for themselves, their spouse, and
The maximum earnings subject tosocial security taxes is $127,200
for 2017, up from $118,500
for 2015 and 2016.
The standard mileage rateis $.575 per business mile as of
January 1, 2015, up from $.56 for 2014.
The maximum annual salary deferral into a 401(k) plan or a
403(b) plan is $18,000 in 2015, 2016 and 2017, up from $17.5k in 2014.
And if you'll be 50 or older by December 31st, you can contribute an extra
$6,000 into your 401(k) or 403(b) account this year.
The maximum annual contribution to your IRA is $5,500 for 2014
through 2017. And if you turn 50 by December 31st, you can contribute an
extra $1,000 that year. You have until April 15, 2017 to make your 2016
In a shocking development, the
IRS recently announced that they will be honoring the FICA tax refunds
submitted by residency programs and individual doctors. The catch is
that only FICA taxes paid prior to 4/1/05 qualify.