YEAR END TAX SAVINGS IDEAS

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Tax Savings Ideas are Still Available

As the end of the year approaches, there is still time to make moves to manage your tax liability. Here are some ideas to consider before the glitter ball drops in Times Square.

 

  • Maximize your retirement plan contributions. This includes IRAs and 401(k) plans at work. Given the contribution limits in 2016 are not increasing, now is the time to maximize the contribution potential for this year.
  • Estimate your current and next year taxable income. With this estimate you can determine which year receives the greatest benefit from a reduction in income. By understanding what the tax rate will be for your next dollar earned, you can understand the tax benefit of reducing income for this year versus next year.
  • Make charitable contributions. Consider which tax year will benefit most from your charitable giving of cash and non-cash items. Shift your giving into the year that will provide you the most benefit. Remember to track your charitable mileage. It is deductible as well.
  • Take capital losses. Each year you can deduct up to $3,000 in capital losses in excess of capital gains. Start to identify which investments may make sense to sell to take advantage of this. If planned correctly, these losses can offset ordinary income.
  • Consider donating appreciated stock. This strategy gives you a charitable deduction for the market value of the stock while not having to pay capital gains tax on the charitable gift. If you provide an annual pledge sheet to your church, this can be a great way to maximize your gift while giving needed funds to your church at the beginning of the year.
  • Standard or itemized deductions. The standard deduction for 2015 and 2016 is $12,600 for joint filers and $6,300 for single filers. If your itemized deductions are close to these amounts, consider shifting the deductions into next year. You can then maximize the benefit of itemizing into one tax year.
  • Retirement plan distributions. If you are age 70½ or older, don’t forget to take your required minimum distributions for the year. If you are retired, but younger than 70½, consider taking tax efficient distributions from your retirement accounts. By paying some tax now, you may avoid paying higher taxes later when you have to follow the minimum distribution rules after reaching 70½ years old.
  • Consider pending tax legislation. There may be late breaking tax legislation once again. Should this happen, please be prepared to move quickly to take advantage of any tax law extensions. Save receipts if you are a teacher. Consider charitable deductions from your retirement plan if you are a senior. Keep receipts of large purchases in case sales tax is added as an itemized deduction in lieu of taking a state income tax deduction.