With the end of the 2016 calendar year quickly approaching, reviewing your specific tax situation may be tax-wise to help reduce your income taxes as well as possible underpayment of tax penalties.
Year-end planning techniques to reduce your taxable income or increase your tax saving deductions may be available for you to consider before the end of the year.? Additionally, if you are concerned that you will have a large tax balance due next April, preparing a year-end tax projection can help you prepare for and budget for the funds needed to pay the balance owed.
Some tax issues to consider for this past year may be:
- Did you have a large or unexpected tax balance owed in 2015 and think 2016 may be similar?
- Did you realize significant capital gains or unexpected investment income this year?
- Did your wages increase significantly in 2016 and you are unsure if your tax withholdings will cover the additional taxes on this increased income?
- Did you receive significant 1099-misc income, consulting income, or other self-employment income in 2016 and paid no or insufficient estimated taxes?
- Did you pay off your mortgage in 2015 or 2016 and no longer have a mortgage interest deduction?
During December, you should also evaluate whether you’ll save any taxes by postponing 2016 income or deductions into 2017 or by accelerating 2017 income or deductions into 2016.? While many factors should be evaluated prior to making your final decision, a few items to keep in mind are as follows:
- For 2016, a single person will itemize once allowable deductions exceed $6,300 and a married couple will itemize once allowable deductions exceed $12,600.
- A taxpayer is no longer subject to Social Security or self-employment taxes once wages and net self-employment earnings exceed $127,200 in 2017, up from $118,500 in 2015 and 2016.
- Miscellaneous itemized deductions, such as unreimbursed employee business expenses, are only deductible to the extent they exceed 2% of adjusted gross income (AGI), and are phased out if you?re subject to the AMT. Items paid with credit cards are deductible in the year charged.
- Medical and dental expenses are deductible to the extent they exceed 10% of AGI, and are deductible in the year paid.
Please contact our office in the next few weeks if you would like us to prepare a year-end tax projection for you.? Being aware of your tax situation will enable our staff to advise you of year-end tax saving strategies to consider that may be available to your unique situation.
Most working professionals have access to a 401(k) plan or a 403(b) plan at work.? Amounts contributed to these plans generally reduce your taxable earnings and always grow tax deferred.? Like 2016, you can again contribute up to $18,000 into a 401(k) or 403(b) plan through salary deferrals in 2017.
Anyone 50 or older by December 31, 2017 can contribute an extra $6,000 into their 401(k) or 403(b) plan through salary deferrals next year, for a total annual contribution of $24,000.? That is the same as what was allowed during 2016.
Many smaller employers offer their staff access to SIMPLE/IRAs instead.? SIMPLE’s work just like 401(k) plans, which means it’s up to you to fund the bulk of this retirement savings account through salary deferrals.? For 2017, the maximum contribution into your SIMPLE remains at $12,500.? Anyone 50 or older by December 31st can sock away an additional $3,000 in 2017, for a total annual contribution of $15,500, unchanged from 2016.
And if you are self-employed,?you can contribute up to 20% of your net self-employment income into a SEP IRA.? The maximum contribution into your SEP IRA for 2017 increases to $54,000, up $1,000 from 2016.
Re-Set Your 2017 Budget:? Most people won’t be able to max out these tax-advantaged retirement options unless they get on a budget and put away a set amount of money each month.? With 2016 winding down, now’s the time to start thinking about resetting your monthly retirement savings goals for 2017.
2017 Maximum Retirement Account Contributions
Retirement Savings Option
|Under the age
|50 or older by December 31st
401(k) or 403(b) deferrals
SIMPLE IRA deferrals
IRA or Roth IRA
Here are the major points of Trump’s Tax Plan that will impact your personal taxes:
Decreased Tax Brackets and Rates: Trump’s tax 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 $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 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 long-term capital gains.
Repeal the 3.8% Medicare Tax on Investment income: The 3.8% Medicare Tax was instituted in 2013 and hits Single Individuals who earn more than $200k and Married Couples who earn more than $250k pay this tax on their investment income.
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.
It’s not too late to cut your 2016 tax bill.? Prior to Dec. 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 away up to $18,000 ($24,000 if 50 or older) into your 401(k) or 403(b) plan.? If you?re self-employed, consider setting up a Solo 401(k) by 12/31.
- Take a look at your withholdings and instruct your employer to withhold additional taxes if you haven?t had enough taxes withheld during the year and might get hit with an underpayment penalty.
- Consider selling your non-retirement investments that have decreased in value since your capital losses can offset other capital gains realized during the year (including from your mutual funds), and then can be used to offset up to $3,000 of wages and other income.
- 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 make sure to put together a list or photos of the donated items, including each item?s condition since only donations of clothing and household items in “good condition or better” qualify for a deduction.
- 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.
- Pre-pay your projected state tax shortfall if you’ll be itemizing your deductions and won?t be subject to the alternative minimum tax.
- Pre-pay or pay off your medical bills if your total medical expenses exceed 10% of your income and you itemize.
An Identity Protection PIN is a 6-digit number that the IRS assigns to taxpayers each year to help verify his/her identity and protect against identity theft.
If you?ve been a victim of identity theft and have notified the IRS of your ID Theft, you must include this IP PIN to your tax return in order to electronically file.
The IRS will be sending a CP01A Notice to those that are issued an IP PIN in late December or early January.? We suggest that you send us a copy of your CP01A Notice to your secure client portal when you receive it so that we can timely file your 2016 income tax return.