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Easy Tax Savers Before Year End

April 26, 2017

Even in the busiest time of the year, you can still take a moment to cut your tax bill.
As the year winds down, many folks are thinking about the family and holiday celebrations and might not be thinking of tax day on April 15. Here are three ideas that can you can act on before the end of December that will save you taxes. It's a good idea to talk with your fiduciary, fee-only financial planner about your tax strategy. She can likely give you a couple more great ideas to take to a meeting with your tax professional before year end.

Optimize Your Tax Liability

Depending on your federal income tax bracket, consider harvesting capital gains or losses to optimize your overall tax liability for this year. If you think you will remain in the 10%-15% tax bracket you can consider harvesting long-term capital GAINS, which can be taxed at a rate as low as 0%. Those in a higher tax bracket, such as 25%-39.6% can consider harvesting LOSSES to offset all capital gains for the year and then up to $3,000 of ordinary income. Your financial planner and tax adviser can help you determine whether harvesting is right for your individual situation and how to best take advantage of this strategy.
REMEMBER: Any excess capital losses can be carried forward to next year until the full amount is used up.
Max out Your Allowable Retirement Deductions If you are currently working, remember to max out your allowable retirement savings deduction for 2016. Depending on your employer, you may still be able to max out your 401(k) up to $18,000 plus a catch-up of $6,000 for those better than 50 years of age. Regardless of employer, you can deduct a contribution to a traditional IRA of up to $5,500 plus $1,000 if you are eligible for the catch up.
And, it's often a great idea to use your IRA contribution to build TAX FREE income for retirement with a Roth IRA. The same IRA limits apply to a ROTH IRA. Total IRA contributions (either Traditional IRA or ROTH IRA or a combination) cannot exceed $5,500 plus a catch up of $1,000. You cannot deduct deposits into a ROTH IRA, but all distributions are TAX FREE.
Annual Gifting Limit for 2016 is $14kYou can reduce your tax liability with gifts to qualifying charitable organizations, but you can also reduce future estate taxes with gifts to family. The federal annual gifting limit for 2016 is $14,000 per recipient. A married couple can make a combined gift of up to $28,000 per recipient. These gifts transfer assets from you to your heirs with no tax or other limitations.
Remember: There is no limit on the number of gifts you give in a year. All without tax consequence.
These amounts are per recipient, which means you can make gifts to as many people as you like by year end, and as long as total gifts to the RECIPIENT for the year are within the stated limits, you can avoid gift tax consequences.

Extra Rax Savings That Are Age Dependent

If you are older than 70 ½ you can reduce your taxable income by contributing some, or all, of your IRA required minimum distribution (RMD) directly to charity by the end of December through a qualified charitable distribution (QCD). Check with your tax advisor to confirm that you qualify to use the qualified charitable distribution.
If you want to cut your taxes before year end, contact my office at I am would be happy to assist you. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.