Five Tax Tips for End-of-Year Planning in 2016

Consider Potential 2017 Tax Cuts in Year End Tax Plans

No one can predict with certainty how the new leadership in Washington will change taxes. The odds are strong that taxes will be lower next year.

blue-piggy-wpBoth President-elect Trump and the Republican leadership have pledged to lower taxes. In most years, you get an advantage if you can push income to the next year, with the time value of delayed taxes. You may have even more incentive this year.

If the Trump plan passes, the IRS will reduce the current seven tax brackets (10, 15, 25, 28, 33, 35, and 39.6 percent) to three (12, 25 and 33 percent). While we do not yet know the income ranges for each bracket, in general, the old and new brackets relate as follows:

  • If your current rate is 10% or 15%, then your new bracket will likely be 12%.
  • If your current rate is 25% or 28%, then your new bracket will likely be 25%.
  • If your current rate is 33%, 35% or 39.6%, then your new bracket will likely be 33%

We have a few tips to help you take advantage of lower tax rates next year.

Tip #1 Delay Income

To take advantage of lower taxes next year, you could request your year-end bonus in January rather than December.

If you own your own business (a sole proprietor, partnership, S Corp, LLC, etc.), you could delay invoicing until late December.

Tip #2 Accelerate Deductions and Expenses (except capital equipment)

You could make extra charitable contributions in December (to increase your deductions for the current tax year). You could also pay estimated state income tax due in January. In addition, if you itemize your medical expenses, you can move any January medical appointments to December.

If you own a business, you can stock-up on business supplies. Look around the office and see what you will need in the New Year. You may want to delay large capital equipment purchases. President-elect Trump has pledged to make all business capital purchases 100% deductible.

Tip# 3 Maximize Health Savings Account (HSA) Contributions

To establish an HSA account, you must have a high-deductible health insurance plan (HDHP). For the 2016 tax year, the IRS defines an HDHP as a plan with a deductible not less than $1,300 for an individual (with maximum out of pocket expenses of $6,500) and not less than $2,600 for a family (with maximum out-of-pocket expenses of $13,100).

For 2016, the maximum contributions to an HSA are $3,350 for and individual (+$1,000 for individuals 55+) and $6750 for a family (+$1,000 for individuals 55+).

Tip #4 Maximize Retirement Savings Account Contributions

Another way to reduce this year’s income is to max out your contributions to retirement savings accounts.

For 2016, the max contribution you can make to a:

401(k) is $18,000 ($24,000 for individuals 50+)

IRA is $5,500 (+ $1,000 more for individuals 50+)

SEP IRA* 25% of total compensation or $54,000 (whichever is less)

*If you are self-employed, special calculations apply to SEP-IRAs. Please contact us if you have any questions.

Tip #5 Sell Losing Investments to Offset Gains

If you have lost money on stocks or mutual funds, you can sell the stocks and claim the loss against any taxable gains you have this year. If your losses exceed your gains, you can claim up to $3,000 as a tax deduction. If you lost more than $3,000, you can carry that loss into future years.

Stay Tuned

Tax reform is likely to be an early effort of the new administration and new congress. As we learn more about the final plans, we will post the information on our blog. So, stay tuned.

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