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December 2016


by Andrew D. Schwartz, CPA

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 to avoid 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 brackets 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 organization, 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 PDF version.)

  • 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.

And, as 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 2017. 

Got questions about year-end tax planning?  If so, please contact the closest MDTAXES CPA.



by Andrew D. Schwartz, CPA

Here are the major points of Trump's Tax Plan that will impact your personal taxes as outlined on

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 follows:

  • 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 Individuals.
  • 33% rate for income over $225k for Married Couples and over $112.5k for Single Individuals

Retain Current 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 3.8% Medicare 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.

Dependent Care Expenses: Get ready for big changes to the tax breaks associated with paying for dependent care expenses.  Please check out Trump;s webpage that outlines his tax plan for more info.

Any changes to the Tax Code must first go through Congress.  With a Republican majority in both the House and the Senate, it will be interesting to see what tax changes are heading our way in 2017.



by Andrew D. Schwartz, CPA

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 Form 3520. 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 instructions for the Form 3520 very carefully before submitting this paperwork with the IRS.  You can find instructions at 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: Please view it, like it, and share it.




Income Taxes

Saving and Investing




  • 4th quarter state estimates should be paid by 12/31 for people who itemize their deductions and won't be hit by the AMT.
  • Review our Ten Tips to Cut Your 2016 Taxes
  • Keogh plans and Solo 401(k)'s must be established by 12/31
  • 529 Plans must be funded by 12/31 to take full advantage of this year's gift limit of $14,000. 
  • Last chance to maximize annual contributions to your 401(k) or 403(b) plan of up to $18,000, ($24,000 if 50 or older).


2015 & 2016 TAX FACTS

  • 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 business expenses.
  • For 2016, the personal exemption is $4,050. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $127,200 for 2017, up from $118,500 for 2015 and 2016.
  • The standard mileage rate is $.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 IRA contributions.


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This Month's Topics

Ten Tips to Cut Your 2016 Taxes

Trump's Tax Plan

How To Report A Foreign Gift Or Inheritance Of More Than $100k In A Calendar Year

The FICA Refund for Medical Residents 

2016 & 2017 Tax Facts

Tax and Financial Planning Calendar for December 2016


Browse our index of previous months' newsletter topics

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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.

For more information, go to our April 2010 Newsletter, our January 2009 Newsletter, or our February 2001 Newsletter or read through the IRS' Chief Counsel Advice Memorandum on this issue.

Let's work together to keep current on this hugely valuable tax break.  Please post whatever you read or hear regarding this FICA issue on our new Message Board we set up just for this topic.


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