Posted on Nov 1, 2016
An important part of our service to you is to help identify actions you can take before year-end to minimize your personal 2016 federal income tax bill. Accelerating or delaying income and deductions, contributing to retirement plans, and taking investment losses are just a few of the strategies you might want to consider. Here’s a checklist to help you get started.
● Max out your 401(k) before year-end. For 2016, you can set aside $18,000 if you’re under age 50. If you’re 50 or older, you can contribute $24,000.
● Get your investment planning in order. Year-end sell decisions, either to rebalance your portfolio at the lowest tax cost or to offset gains and losses, are only one aspect of investment planning. Another is keeping good records for the reinvested dividends of stocks you sell in 2016. Reinvested dividends add to your cost basis and reduce taxable gain or increase the deductible loss on the sale. Finally, consider the wash sale rule. This rule disallows a current-year loss when you purchase substantially identical securities within a 61-day period. If you plan to sell stocks to secure a loss, and intend to buy the stock back, don’t wait until the last moment.
● Make gifts before year-end. The use-it-or-lose-it tax-free gifting allowance is $14,000 per donee for 2016. Remember, gifts to individuals are not tax- deductible.
● Contribute to your Health Savings Account. Within limits, contributions are tax- deductible and can be used tax-free to pay unreimbursed medical expenses.
● Keep an eye on the “kiddie tax.” This tax on your dependent child’s unearned income in excess of certain limits applies when your child is under age 19 (under age 24 if a full-time student). We have more planning strategies to save you tax dollars. Contact us for a year-end review.